Dadi International Group Limited - Proxy Solicitation & Information Statement 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Brilliant Arts Multi-Media Holding Limited (the “ Company ”), you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities mentioned herein.

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8130)

MAJOR TRANSACTION, REFRESHMENT OF SCHEME MANDATE LIMIT OF SHARE OPTION SCHEME

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening an extraordinary general meeting (the “ EGM ”) of the Company to be held at 4:30 p.m. on Thursday, 17 January 2008 at Unit 1611, 16/F., Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong is set out on pages 118 and 119 of this circular.

Whether or not you are able to attend the EGM, you are advised to read the notice and to complete and return the enclosed form of proxy, in accordance with the instructions printed thereon, to the Hong Kong branch share registrar and transfer office of the Company, Tricor Secretaries Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting. The completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjourned meeting in person if you so wish.

This circular will remain at www.hkgem.com on the “Latest company announcements” page of the GEM website for at least 7 days from the date of its posting.

31 December 2007

CHARACTERISTICS OF GEM

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

The principal means of information dissemination on GEM is publication on the internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website in order to obtain up-to-date information on GEM-listed issuers.

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			Page
Definitions . .	. .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the		Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Appendix I	–	Financial information on the Group. . . . . . . . . . . . . . . . . . . . . . .	16
Appendix II	–	Valuation report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	55
Appendix III	–	Accountants’ report on the Target Group . . . . . . . . . . . . . . . . . .	59
Appendix IV	–	Financial information on the Classic Grace Group . . . . . . . . . . .	84
Appendix V	–	Pro forma financial information on the Enlarged Group . . . . . .	105
Appendix VI	–	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	110
Notice of EGM		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	118

– ii –

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings when used herein:

“Acquisition” the acquisition of the entire issued share capital in the Target and the related Shareholder’s Loan by the Company under the Sale and Purchase Agreement
“Announcement” the announcement of the Company dated 26 October 2007 in respect of, among others, the Acquisition
“associate” has the meaning ascribed to it under the GEM Listing Rules
“Board” the board of Directors, including all independent non-executive Directors
“Business Day” any day (other than a Saturday) on which licensed banks are generally open for business in Hong Kong throughout their normal business hours
“CAN$” Canadian dollars, the lawful currency of Canada “CCIF” CCIF CPA Limited, the reporting accountants appointed by the Company in respect of the Acquisition
“China Star” China Star Entertainment Limited, a company incorporated in Bermuda and the issued Shares of which are listed on the Main Board of the Stock Exchange
“Classic Grace” Classic Grace Enterprises Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company
“Classic Grace Group” Classic Grace and its subsidiary “Company” Brilliant Arts Multi-Media Holding Limited, a company incorporated in the Cayman Islands with limited liability and the issued Shares of which are listed on GEM
“Completion” completion of the Acquisition

“connected person(s)” has the meaning ascribed to this term under the GEM Listing Rules

– 1 –

DEFINITIONS

“Consideration Shares” a maximum of 180,000,000 new Shares to be allotted and issued pursuant to the Sale and Purchase Agreement
“Convertible Bond” the convertible bond in the principal amount of HK$24 million issued by the Company in favour of Billion ERA Group Limited
“CSL” Classical Statue Limited, a company incorporated in the British Virgin Islands, the holder of the outstanding CSL Convertible Bonds and a wholly-owned subsidiary of China Star
“CSL Convertible Bonds” the convertible bonds issued by the Company in favour of CSL with an aggregate principal amount of HK$25 million and as at the Latest Practicable Date, HK$1,000,000 of the CSL Convertible Bonds remained outstanding
“Directors” the directors of the Company “EGM” an extraordinary general meeting of the Company to be convened and held at 4:30 p.m. on Thursday, 17 January 2008 at Unit 1611, 16/F., Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong to consider and, if thought fit, to approve the Sale and Purchase Agreement and the transactions contemplated thereunder
“Enlarged Group” the Group immediately upon Completion
“GEM” the Growth Enterprise Market of the Stock Exchange “GEM Listing Committee” the listing sub-committee of the board of directors of the Stock Exchange with responsibility for GEM
“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM “Grant Sherman” Grant Sherman Appraisal Limited, a professional firm of valuers appointed by the Company to provide a valuation report on the Property, an Independent Third Party
“Group” the Company and its subsidiaries
“Guarantor” Mr. Cheung, the ultimate beneficial owner of the Vendor and the guarantor under the Sale and Purchase Agreement

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DEFINITIONS

“HK$”
Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”
the Hong Kong Special Administrative Region of the PRC
“Independent Third Party(ies)” third party(ies) independent of the Company and connected persons (as defined under the GEM Listing Rules) of the Company and who are not connected persons (as defined under the GEM Listing Rules) of the Company
“Last Trading Day” 23 October 2007, being the date immediately prior to the date of the suspension of trading in the Shares pending the release of the Announcement
“Latest Practicable Date”
28 December 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information herein
“Mr. Cheung” Mr. Cheung Kwok Wai
“Property”
a land site with an area of approximately 73,715 square feet, being erected thereon office and warehouse buildings, located in British Columbia, Canada, which is wholly and beneficially owned by the Target
“Sale and Purchase Agreement”
the conditional sale and purchase agreement dated 23 October 2007 entered into between the Company, the Vendor and the Guarantor in relation to the Acquisition
“SFC”
the Securities and Futures Commission of Hong Kong
“SFO”
the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong
“Share(s)”
ordinary share(s) of HK$0.10 each in the share capital of the Company
“Shareholder(s)” shareholders of the Company
“Shareholder’s Loan”
all obligations, liabilities and debts owing or incurred by the Target to the Vendor on or at any time prior to Completion, whether actual, contingent or deferred and irrespective of whether the same is due and payable on Completion

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DEFINITIONS

“Share Option Scheme” the share option scheme adopted by the Company pursuant to the written resolution of the Company on 2 August 2002
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Target”
Grandeur Concord Limited, a company incorporated in the British Virgin Islands and is wholly and beneficially owned by the Vendor
“Target Group”
the Target and its subsidiary
“Tranche I Placing”
placing of 49,860,000 new Shares under general mandate of the Company and on fully underwritten basis as announced in Announcement, which has been completed as at the Latest Practicable Date
“Tranche I Placing Agreement”
the conditional placing agreement dated 23 October 2007 entered into between the Company and the placing agent in relation to the Tranche I Placing
“Tranche II Placing”
placing of 1,350,000,000 new Shares under specific mandate to be sought at the relevant extraordinary general meeting of the Company, of which 900,000,000 new Shares on best effort basis and 450,000,000 new Shares on fully underwritten basis, as announced in the Announcement, which has not been completed as at the Latest Practicable Date.
“Tranche II Placing Agreement”
the conditional placing agreement dated 23 October 2007 entered into between the Company and the placing agent in relation to the Tranche II Placing
“Vendor”
Eagle Mate Limited, an Independent Third Party
“Vincent Investment”
Vincent Investment Limited, a wholly-owned subsidiary of the Target
“%”

per cent

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LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability) (Stock Code: 8130)

Executive Directors:

Mr. Lei Hong Wai (Chairman) Mr. Yip Tai Him

Independent non-executive Directors:

Mr. Lai Hok Lim Mr. Leung Wai Man Mr. Man Kong Yui

Registered office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Head office and principal place of business in Hong Kong: Unit 1611, 16/F Shun Tak Centre West Tower 168-200 Connaught Road Central Hong Kong

31 December 2007

To the Shareholders

Dear Sirs or Madams,

MAJOR TRANSACTION, REFRESHMENT OF SCHEME MANDATE LIMIT OF SHARE OPTION SCHEME AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The Company announced on 26 October 2007, among others, that the Company entered into the Sale and Purchase Agreement dated 23 October 2007 with the Vendor and the Guarantor pursuant to which the Company has conditionally agreed to acquire and the Vendor has conditionally agreed to sell the entire issued share capital of the Target and the related Shareholder’s Loan for an aggregate consideration of HK$18,000,000 (subject to adjustment), which shall be satisfied by the Company allotting and issuing the Consideration Shares to the Vendor on Completion credited as fully paid.

The Acquisition constitutes a major transaction on the part of the Company under the GEM Listing Rules and is subject to the approval of the Shareholders at the EGM. No Shareholder is required to abstain from voting at the EGM.

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LETTER FROM THE BOARD

The Board also proposes to refresh the limit in respect of the granting of share options under the Share Option Scheme and all other share option scheme(s) up to 10% of the total number of Shares in issue as at the date of approval of such refreshment by the Shareholders at the EGM (the “Proposed Refreshment”). The purpose of this circular is to provide you with further information, among other matters, regarding the Group and the Acquisition, the Proposed Refreshment and a notice convening the EGM and a proxy form.

THE SALE AND PURCHASE AGREEMENT

Date : 23 October 2007 (at around 6 p.m.)

Parties :

(1) Purchaser : the Company
(2) Vendor : Eagle Mate Limited, wholly owned by Mr. Cheung, both of whom are Independent Third Parties
(3) Guarantor : Mr. Cheung, who guarantees in favour of the Company the due and punctual performance of the Vendor under the Sale and Purchase Agreement

The Vendor is an investment holding company.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendor and its ultimate beneficial owner are an Independent Third Party and does not hold any Shares. There have been no previous transactions entered into between the Vendor and the Company which requires aggregation under Rule 20.25 of the GEM Listing Rules. The Vendor was introduced to the Group as Mr. Cheung is socially acquainted with a few of the Directors.

Assets to be acquired

Pursuant to the Sale and Purchase Agreement, the Company has agreed to acquire and the Vendor has agreed to sell the entire issued share capital of the Target and the related Shareholder’s Loan. The sole asset of significance of the Target Group is the Property.

Consideration

The aggregate consideration for the Acquisition is HK$18,000,000 (subject to adjustment) and shall be satisfied by the Company allotting and issuing a maximum of 180,000,000 Consideration Shares to the Vendor upon Completion at an issue price of HK$0.10 per Consideration Share credited as fully paid. Pursuant to the Sale and Purchase Agreement, a valuation report shall be conducted by an independent property valuer valuing the Property on an open market basis to be not less than HK$18,000,000, and in the event that the value of the Property based on such valuation is less than HK$18,000,000

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LETTER FROM THE BOARD

(“Valuation Amount”), the aggregation consideration for the Acquisition shall be deducted on a dollar for dollar basis in an amount equal to the shortfall of the Valuation Amount to HK$18,000,000.

The consideration for the Acquisition was determined after arm’s length negotiation on a commercial basis and with reference to price of surrounding properties of similar size and usage. The Directors (including the independent non-executive Directors) consider that the terms and conditions of the Acquisition to be fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Pursuant to the valuation report prepared by Grant Sherman, a copy of which is set out in Appendix II to this circular, the Property is valued at approximately HK$22,036,158) as at 31 October 2007.

The issue price of the Consideration Shares of HK$0.10 represents:

(i) a discount of approximately 31.0% to the closing price of HK$0.145 per Share as quoted on the Stock Exchange on the Last Trading Date;
(ii) a discount of approximately 33.2% to the average of the closing prices of HK$0.1496 per Share for the five consecutive trading days up to and including the Last Trading Date;
(iii) a discount of approximately 38.9% to the average of the closing prices of HK$0.1637 per Share for the ten consecutive trading days up to and including the Last Trading Date; and
(iv) a discount of approximately 4.76% to the closing price of HK$0.105 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

The 180,000,000 Consideration Shares represent approximately 42.47% of the existing issued share capital of the Company as at the Latest Practicable Date and approximately 29.81% of the issued share capital of the Company as enlarged by the allotment and issue of the 180,000,000 Consideration Shares.

The Consideration Shares will be issued pursuant to the specific mandate to be sought at the EGM. The Consideration Shares, when allotted and issued, will rank pari passu in all respects with the existing Shares in issue on the date of allotment and issue of such Consideration Shares. An application will be made to the GEM Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares.

Lock-up period for the Consideration Shares

Pursuant to the Sale and Purchase Agreement, the Vendor has undertaken not to dispose of any of Consideration Shares during the 12 months period after the allotment and issue of the Consideration Shares.

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LETTER FROM THE BOARD

Conditions precedent

Completion shall be conditional upon and subject to:

(a) the Company being satisfied with the results of the due diligence review to be conducted under the Sale and Purchase Agreement (including but not limited to the investigation of the title of the Vendor over the Property and the relevant title documents);
(b) all necessary consents and approvals required to be obtained on the part of the Vendor in respect of the Sale and Purchase Agreement and the transactions contemplated thereunder having been obtained;
(c) the passing by the Shareholders at an extraordinary general meeting to be convened and held of an ordinary resolution to approve the Sale and Purchase Agreement and the transactions contemplated thereunder, including but not limited to the issue of the Consideration Shares to the Vendor;
(d) the warranties remaining true and accurate in all respects;
(e) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Consideration Shares; and
(f) the issue and allotment of the Consideration Shares not resulting in the Vendor holding more than 29.9% of the then issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares upon Completion.

The Company may in its absolute discretion at any time waive in writing any of the conditions (or any part thereof) other than those set out in (c) and (e) above, and such waiver may be made subject to such terms and conditions as are determined by the Purchaser and agreed by the Vendor. The Company has no current intention to waive any of the conditions as at the Latest Practicable Date. If the conditions have not been satisfied (or as the case may be, waived by the Company) on or before 30 June 2008, or such later date as the Vendor and the Company may agree, the Sale and Purchase Agreement shall cease and determine and thereafter neither party shall have any obligations and liabilities towards each other thereunder save for any antecedent breaches of the terms thereof.

Completion

Completion shall take place at 4:00 p.m. on the date falling two Business Days after the fulfilment (or waiver) of the conditions precedent or such other date as may be agreed between the Vendor and the Company.

Completion is not conditional upon the Tranche I Placing and/or Tranche II Placing. Upon Completion, the Target will become a wholly-owned subsidiary of the Company.

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LETTER FROM THE BOARD

The Vendor has no current intention to nominate any representative to be appointed as a Director or change the existing business of the Group upon Completion. The Acquisition will not result in a change in control of the Company.

SERVICE CONTRACT

Upon Completion, Mr. Cheung will enter into a service contract with the Company to act as the general manager of the Company for managing the Group’s investments in Canada.

The service agreement will also contain terms to the effect that:

(1) The appointment shall be for an initial term of 3 years and renewable automatically for successive terms of one year each commencing from the day next after the expiry of the then current term of the respective appointments, unless terminated pursuant to the terms of the respective service agreements or by not less than 3 months’ notice in writing served by either party expiring at the end of the initial term or at any time thereafter.
(2) The Company shall pay to Mr. Cheung a salary at the rate of HK$120,000 per annum.

Mr. Cheung will not be appointed as a director of the Company or its subsidiaries as a result of Completion.

INFORMATION ON THE TARGET GROUP

The Target was incorporated in the British Virgin Island and the Target Group is principally engaged in the operation of a warehouse in Canada for rental income. The Target has no business, other than the holding of Vincent Investment. For the two financial years ended 31 March 2007, the audited net profits before taxation and extraordinary items attributable to the Target Group were approximately HK$1.77 million and approximately HK$2.08 million respectively, and the audited net profits after taxation and extraordinary items attributable to the Target Group were approximately HK$1.53 million and approximately HK$1.75 million respectively. As at 31 October 2007, the audited net assets of the Target Group was approximately HK$10.94 million.

REASONS FOR THE PROPOSED ACQUISITION

The principal activities of the Company is investment holding. The Group is principally engaged in the provision of film production services, production of television movies, investment in film productions and worldwide film distribution. The Acquisition represents an investment opportunity for the Group enhancing its revenue base.

The Board is of the view that the terms and conditions of the Acquisition are fair and reasonable and on normal commercial terms, and the Acquisition is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE COMPANY

Set out below is the shareholding structure of the Company as at the Latest Practicable Date, and for illustrative purpose, the effects on the shareholding structure of the Company upon completion of the Tranche II Placing and the Acquisition:

As at the Latest Practicable Date Shares % 109,090,908 25.74% 37,376,000 8.82% – 0.00%	As at the Latest Practicable Date Shares % 109,090,908 25.74% 37,376,000 8.82% – 0.00%	Upon completion of the Acquisition Shares % 109,090,908 18.07% 37,376,000 6.19% 180,000,000 29.81%	Upon completion of the Acquisition Shares % 109,090,908 18.07% 37,376,000 6.19% 180,000,000 29.81%	Upon completion of Tranche II Placing and the Acquisition Shares % 109,090,908 5.58% 37,376,000 1.91% 180,000,000 9.21%	Upon completion of Tranche II Placing and the Acquisition Shares % 109,090,908 5.58% 37,376,000 1.91% 180,000,000 9.21%
146,466,908 – 277,387,000	34.56% 0.00% 65.44%	326,466,908 – 277,387,000	54.07% 0.00% 45.93%	326,466,908 1,350,000,000 277,387,000	16.70% 69.09% 14.21%
277,387,000	65.44%	277,387,000	45.93%	1,627,384,000	83.30%
423,853,908	100.00%	603,853,908	100.00%	1,953,853,908	100.00%

Notes:

The entire issued share capital of CSL is beneficially owned by China Star.
The entire issued share capital of Right Opportune Limited is beneficially owned by Mr. Law Sau Yiu, Dennis.
None of the individual placees will become a substantial shareholder (as defined in the GEM Listing Rules) immediately after the Tranche II Placing.

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LETTER FROM THE BOARD

EFFECT OF THE ACQUISITION TO THE ENLARGED GROUP

The audited consolidated total assets and total liabilities of the Group as at 31 March 2007 were approximately HK$90.8 million and HK$108.9 million respectively. As set out in Appendix V to this circular, the unaudited pro forma consolidated total assets and total liabilities of the Enlarged Group will be approximately HK$114.7 million and HK$114.8 million respectively.

The audited consolidated net liabilities of the Group as at 31 March 2007 was approximately HK$18.1 million. As set out in Appendix V to this circular, the unaudited pro forma consolidated net liabilities of the Enlarged Group would be approximately HK$0.1 million.

It is expected that the Acquisition would have a positive effect on the earnings of the Enlarged Group.

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Group is principally engaged in the provision of film production services, production of television movies, investment in film productions and worldwide film distribution. The Target Group is principally engaged in the operation of a warehouse in Canada for rental income. The Acquisition represents an investment opportunity for the Group enhancing its revenue base. In November 2007, the Company acquired the entire issued share capital in Classic Grace, the sole assets of significance of which is a commercial property in Hong Kong. Such property is being utilised for office use of the Group. Other than the holding of such property, Classic Grace has no other business as at the Latest Practicable Date. The consideration for the acquisition of Classic Grace was HK$24,000,000 which was satisfied by the Company issuing the Convertible Bond.

The Group recorded a net loss of approximately HK$16.2 million for the financial year 31 March 2007. The Board considers that one of the major underlying reasons for the discouraging results was mainly due to the high level of overall overhead of the Group and this has been causing concern to the management of the Company. With an aim to improve cost effectiveness, the Group disposed of its interest in its two wholly-owned subsidiaries with consistently high level of overhead, namely Milkyway Image (Hong Kong) Limited and Luminous Star Limited in June 2007. The Group believes that the overall overhead in future can be significantly reduced and it will be in the best interests of the Group and the Shareholders as a whole. For the six months ended 30 September 2007, the Group recorded a profit attributable to the equity holders of the Company of approximately HK$20.1 million (2006: a loss attributable to the equity holders of the Company of approximately HK$1.4 million). The improved results was mainly contributed by the disposal of two wholly-owned subsidiaries, namely, Milkyway Image (Hong Kong) Limited and Luminous Star Limited. Such disposal resulted in a gain on disposal of approximately HK$28.3 million.

Following the conversions of nearly all the CSL Convertible Bonds, the capital base of the Group has strengthened and the gearing ratio further reduced. As a consequence, the Group can be more responsive to any emerging business opportunities. The Board will invite talents to join the management of the Group in order to bring new thoughts and expertise to

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LETTER FROM THE BOARD

the Group. Together with proceeds derived from the disposal of two wholly-owned subsidiaries, the Group will further develop the existing business and actively explore valuable investment opportunities so as to diversify and broader its revenue sources.

Furthermore, the Board intends to apply the net proceeds from the open offer which was completed in October 2007 for potential investments which may or may not be in the principal line of business of the Group, such as property investments, as and when opportunities arise, or for general working capital of the Group. The Board also intends to apply the net proceeds from the Tranche I Placing and the Tranche II Placing for potential investments or for general working capital of the Group. As at the Latest Practicable Date, the Tranche I Placing has been completed while the Tranche II Placing has not been completed.

IMPLICATIONS UNDER THE GEM LISTING RULES IN RESPECT OF THE ACQUISITION

The Acquisition constitutes a major transaction on the part of the Company under the GEM Listing Rules and is subject to the approval of the Shareholders at the EGM. Pursuant to the GEM Listing Rules, any Shareholder and his associates must abstain from voting if such Shareholder has a material interest in the Acquisition. The Directors confirm that, to the best of their knowledge, information and belief having made all reasonable enquiry, no Shareholder and their respective associates have any material interest in the Acquisition which is different from other Shareholders, and therefore no Shareholder is required to abstain from voting to approve the Sale and Purchase Agreement and the transactions contemplated thereunder at the EGM.

REFRESHMENT OF THE SCHEME MANDATE LIMIT

Under the GEM Listing Rules, the maximum number of Shares which may be allotted and issued upon the exercise of all options which initially shall not in aggregate exceed 10% of the Shares in issue as at the date of adoption of the Share Option Scheme and thereafter, if refreshed shall not exceed 10% of the Shares in issue as at the date of approval of the refreshed limit by the Shareholders (the “Scheme Mandate Limit”).

The limit of the Share Option Scheme was refreshed by a resolution of the Shareholders at the extraordinary general meeting of the Company held on 23 November 2007 (the “November EGM”), allowing the Directors to grant further options under the Share Option Scheme carrying rights to subscribe for Shares a maximum of 42,385,390 Shares, being 10% of the issued share capital of the Company as at the date of the November EGM (the “Current Limit”).

As at the Latest Practicable Date, the Company had 67,315,110 outstanding options carrying rights to subscribe for a total of 67,315,110 Shares (the “Options”), of which 42,385,390 Options carrying rights to subscribe for a total of 42,385,390 Shares had been granted under the Current Limit and in accordance with the terms of the Share Option Scheme (representing almost all of the Current Limit and about 10.0% of the total number of Shares in issue as at the Latest Practicable Date). Other than the Options, no option granted by the Company remained outstanding as at the Latest Practicable Date. The

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LETTER FROM THE BOARD

Directors therefore propose to refresh the limit of the Share Option Scheme in order to enable the Company to grant further options in order to provide incentives and rewards to eligible participants for their contribution or potential contribution to the Group and provide the Company with greater flexibility on recruiting and retaining high-calibre employees and attracting human resources that are valuable to the Group. Save for the Share Option Scheme, the Company has no other share option schemes as at the Latest Practicable Date.

The refreshment of the Scheme Mandate Limit is conditional upon (i) the passing by the Shareholders of an ordinary resolution at the EGM to approve, among other things, the refreshment of the Scheme Mandate Limit; and (ii) the GEM Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, 10% of the Shares in issue at the date of approval of the refreshment of the Scheme Mandate Limit which may be issued pursuant to the exercise of options to be granted under the Share Option Scheme.

As at the Latest Practicable Date, there were 423,853,908 Shares in issue. Assuming no Shares are issued and/or repurchased by the Company prior to the date of the EGM, subject to the approval by the Shareholders of the refreshment of the Scheme Mandate Limit at the EGM, the Scheme Mandate Limit (as refreshed) will allow the Company to grant Options carrying rights to subscribe for 42,385,390 Shares.

Application will be made by the Company to the GEM Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Shares which may fall to be issued and allotted upon the exercise of any options that may be granted under the Share Option Scheme and all other share option scheme(s), up to 10% of the Shares in issue as at the date of approval of the refreshment of the Scheme Mandate Limit at the EGM.

THE EGM

A notice convening the EGM at which an ordinary resolution will be proposed to the Shareholders to consider and, if thought fit, to approve the Sale and Purchase Agreement and the transactions contemplated thereunder and the Proposed Refreshment is set out on pages 118 and 119 of this circular.

A form of proxy for use at the EGM is also enclosed with this circular. In order to be valid, the enclosed form of proxy, together with any power of attorney or other authority under which it is signed must be completed in accordance with the instructions printed thereon and delivered to the Hong Kong branch share registrar and transfer office of the Company, Tricor Secretaries Limited, at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM or any adjourned meeting. The completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjourned meeting in person if you so wish.

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LETTER FROM THE BOARD

PROCEDURES FOR DEMANDING A POLL

Articles 66 and 67 of the articles of association of the Company set out the procedures under which a poll may be demanded. At any general meeting, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

(a) by the Chairman of such meeting; or
(b) by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or
(c) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or
(d) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

A demand by a person as proxy for a Shareholder or in the case of a Shareholder being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a Shareholder.

Notwithstanding any other provisions of these articles, (a) if the aggregate proxies held by the chairman of a particular meeting and the Directors account for 5 per cent or more of the total voting rights at that meeting, and (b) if on a show of hands in respect of any resolution the Shareholders at the meeting vote in the opposite manner to that instructed in the proxies referred to in (a) above, then the chairman of the meeting and/or any Director holding the proxies referred to above shall demand a poll. However, if it is apparent from the total proxies held by the persons referred to in (a) above that a vote taken on a poll will not reverse the vote taken on a show of hands, then no poll shall be required.

Unless a poll is so required under the rules of the designated stock exchange or duly demanded and, in the latter case, the demand is not withdrawn, a declaration by the chairman that a resolution has been carried, or carried unanimously, or by a particular majority, or not carried by a particular majority, or lost, and an entry to that effect made in the minute book of the Company, shall be conclusive evidence of the facts without proof of the number or proportion of the votes recorded for or against the resolution.

– 14 –

LETTER FROM THE BOARD

RECOMMENDATION

The Directors (including the independent non-executive directors) consider the Sale and Purchase Agreement and the transactions contemplated thereunder and the Proposed Refreshment are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent non-executive directors) recommend the Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the Sale and Purchase Agreement and the transactions contemplated thereunder and the Proposed Refreshment.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information set out in the appendices to this circular.

Yours faithfully For and on behalf of the Board Brilliant Arts Multi-Media Holding Limited Lei Hong Wai

Chairman

– 15 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

THREE YEARS FINANCIAL SUMMARY

The following table summarises the results and financial position of the Group for the last three financial years ended 31 March 2007 as extracted from the relevant published financial statements of the Group.

RESULTS

Turnover Loss from operations Finance costs Loss before taxation Income tax Loss attributable to shareholders	Year 2005 HK$’000 36,836 (8,329) (36)	ended 31 March 2006 2007 HK$’000 HK$’000 17,258 62,288 (17,505) (14,333 (680) (1,821	ended 31 March 2006 2007 HK$’000 HK$’000 17,258 62,288 (17,505) (14,333 (680) (1,821
	(8,365) –	(18,185) –	(16,154 –
	(8,365)	(18,185)	(16,154

ASSETS AND LIABILITIES

	As	at 31 March
	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Non-current assets	15,050	11,975	9,952
Current assets	21,085	32,800	80,834
Current liabilities	28,931	54,557	94,845
Non-current liabilities	2	171	14,085

– 16 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE FINANCIAL YEAR ENDED 31 MARCH 2007

The following information is extracted from the audited consolidated financial statements of the Group as set out in the annual report of the Company for the year ended 31 March 2007:

Consolidated Income Statement

For the year ended 31 March 2007

Notes Turnover 7 Cost of sales Gross profit Other revenue 7 Other operating expenses Provisions 28 Loss from operations 9 Finance costs 10 Loss before taxation Income tax 13 Loss for the year attributable to equity holders of the Company Loss per share 15 −Basic −Diluted	2007 HK$’000 62,288 (49,004)	2006 HK$’000 17,258 (13,438) 3,820 529 (21,854) – (17,505) (680) (18,185) – (18,185) (HK22.6 cents) N/A
	13,284 813 (24,430) (4,000) (14,333) (1,821) (16,154) –	3,820 529 (21,854 –
		(17,505 (680
		(18,185 –
	(16,154) (HK18.9 cents) N/A

– 17 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

As at 31 March 2007

Notes Non-current assets Film rights 16 Property, plant and equipment 17 Current assets Film rights, current portion 16 Films in progress 16 Production in progress Trade debtors 19 Deposits, prepayments and other debtors Bank balances and cash Current liabilities Trade creditors 20 Other creditors and accruals Receipt in advance Amounts due to directors 21 Amounts due to related companies 31(b) Provisions 28 Obligations under finance leases −due within one year 22 Bank loan 23 Net current liabilities Total assets less current liabilities Capital and reserves Share capital 24 Reserves 25 Total equity Non-current liabilities Convertible bonds 26 Obligations under finance leases −due after one year 22	2007 HK$’000 – 9,952	2006 HK$’000 277 11,698 11,975 4,982 6,483 12,364 417 4,944 3,610 32,800 2,459 905 31,813 1,242 15,097 – 41 3,000 54,557 (21,757) (9,782) 8,050 (18,003) (9,953) – 171 171 (9,782)
	9,952 2,397 9,110 25,522 13,812 6,116 23,877 80,834 2,762 1,117 46,347 2,484 37,755 4,000 380 – 94,845 (14,011)	11,975
		4,982 6,483 12,364 417 4,944 3,610
		32,800
		2,459 905 31,813 1,242 15,097 – 41 3,000
		54,557
		(21,757
	(4,059)
	10,620 (28,764) (18,144) 13,841 244 14,085	8,050 (18,003
		(9,953
		– 171
		171
	(4,059)

– 18 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance Sheet

As at 31 March 2007

Notes Non-current assets Interests in subsidiaries 18 Current assets Deposits, prepayments and other debtors Amounts due from subsidiaries 18 Bank balances and cash Current liabilities Other creditors and accruals Amounts due to directors 21 Amounts due to related companies 31(b) Net current assets/(liabilities) Total assets less current liabilities Capital and reserves Share capital 24 Reserves 25 Total equity Non-current liabilities Convertible bonds 26	2007 HK$’000 468	2006 HK$’000 516 516 112 – 22 134 184 1,242 – 1,426 (1,292) (776) 8,050 (8,826) (776) – (776)
	468 300 16,070 17,813 34,183 642 2,484 15,129 18,255 15,928	516
		112 – 22
		134
		184 1,242 –
		1,426
		(1,292
	16,396
	10,620 (8,065) 2,555 13,841	8,050 (8,826
		(776 –
	16,396

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2007

	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company
Share capital HK$’000 8,050 – – 8,050 – 1,610 – – 960 10,620	Share premium HK$’000 15,050 – – 15,050 – 1,932 (159) – 1,251 18,074	Contributed surplus Share-based compensation reserves HK$’000 HK$’000 10 – – – – 1,030 10 1,030 – – – – – – – – – – 10 1,030	Convertible bond reserves Accumulated losses HK$’000 HK$’000 – (15,908) – (18,185) – – – (34,093) – (16,154) – – – – 2,692 – (323) – 2,369 (50,247)	Total HK$’000 7,202 (18,185) 1,030
				(9,953) (16,154) 3,542 (159) 2,692 1,888
				(18,144)

– 20 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2007

OPERATING ACTIVITIES Loss before taxation Adjustments for: Interest income Gain on disposal of property, plant and equipment Depreciation Amortisation of film rights Finance charges on finance leases Impairment loss of films in progress Interest expenses Provisions Share-based payment Operating cash flows before movements in working capital (Increase)/decrease in films in progress Increase in production in progress Increase in trade debtors (Increase)/decrease in deposits, prepayments and other debtors Increase in trade creditors Increase in other creditors and accruals Increase in receipt in advance Increase/(decrease) in amounts due to directors Cash generated from operations Interest paid NET CASH GENERATED FROM OPERATING ACTIVITIES INVESTING ACTIVITIES Interest received Additions of film rights Purchase of property, plant and equipment NET CASH USED IN INVESTING ACTIVITIES	2007 HK$’000 (16,154) (183) – 3,941 30,058 45 1,600 1,776 4,000 –	2006 HK$’000 (18,185) (29) (53) 3,752 7,172 13 – 667 – 1,030 (5,633) 3,121 (10,288) (358) 1,575 1,738 131 15,707 (1,096) 4,897 (580) 4,317 29 (12,431) (117) (12,519)
	25,083 (4,227) (13,158) (13,395) (1,172) 303 212 14,534 1,242 9,422 (1,397) 8,025 183 (27,196) (1,365) (28,378)	(5,633 3,121 (10,288 (358 1,575 1,738 131 15,707 (1,096
		4,897 (580
		4,317
		29 (12,431 (117
		(12,519

– 21 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

FINANCING ACTIVITIES Finance charges on finance leases paid Repayment of bank loan Loans from related companies Proceeds from issue of shares Proceeds from issue of convertible bonds Repayment of obligations under finance leases Share issue expenses NET CASH GENERATED FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR CASH AND CASH EQUIVALENTS ANALYSIS Bank balances and cash	2007 HK$’000 (45) (3,000) 22,500 3,542 18,200 (418) (159) 40,620 20,267 3,610 23,877 23,877	2006 HK$’000 (13) (2,000) 11,000 – – (28) – 8,959 757 2,853 3,610 3,610

– 22 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Financial Statements

31 March 2007

1. GENERAL

The Company was incorporated in the Cayman Islands on 9 November 2001 under the Companies Law of Cayman Islands as an exempted company with limited liability and its shares are being listed on the Growth Enterprise Market (“GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The addresses of the registered office and principal place of business of the Company are disclosed in the “Corporate Information” section of the annual report.

The principal activities of the Group are the provision of film production services, production of television movies, investment in film productions and worldwide film distribution.

The consolidated financial statements are presented in Hong Kong dollars, which is the same as the functional currency of the Company.

2. BASIS OF PREPARATION

In preparing the consolidated financial statements, the directors of the Company have given consideration to the future liquidity of the Group in light of its deficit in equity of approximately HK$18,144,000 as at 31 March 2007 (2006: approximately HK$9,953,000) and the loss attributable to the equity holders of the Company of approximately HK$16,154,000 for the year ended 31 March 2007 (2006: approximately HK$18,185,000). The directors have taken the measures subsequent to the year ended 31 March 2007, which included (i) the placing of convertible bonds with a principal amount of HK$25 million in May 2007; and (ii) the proposed disposal of two subsidiaries with a total consideration of HK$26 million, as further detailed in the Note 33(a) and (b), to improve the liquidity position of the Group. In the opinion of the directors, the Group will be able to meet its liabilities in full as they fall due in the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

If these measures were not successful or insufficient, or if the going concern basis was not appropriate, adjustments would have to be made to the financial statements to reduce the value of the Group’s assets to their recoverable amounts, to provide for any further liabilities which might arise and to reclassify non-current assets and liabilities as current assets and liabilities.

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has applied, for the first time, a number of new standards, amendments and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) that are effective for accounting periods either beginning on or after 1 December 2005, 1 January 2006 or 1 March 2006. The adoption of the new HKFRSs has had no material effect on how the results for the current or prior accounting years are prepared and presented. Accordingly, no prior year adjustment is required.

– 23 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Group has not early applied the following new standards, amendment and interpretations that have been issued but are not yet effective. The Group anticipates that the application of new standards, amendment and interpretations will have no material impact on the consolidated financial statements of the Group.

HKAS 1 (Amendment) Capital disclosures (effective for annual periods beginning on or after 1 January 2007) HKFRS 7 Financial Instruments: Disclosures (effective for annual periods beginning on or after 1 January 2007) HKFRS 8 Operating segments (effective for annual periods beginning on or after 1 January 2009) HK(IFRIC) −Int 8 Scope of HKFRS 2 (effective for annual periods beginning on or after 1 May 2006) HK(IFRIC) −Int 9 Reassessment of embedded derivatives (effective for annual periods beginning on or after 1 June 2006) HK(IFRIC) −Int 10 Interim financial reporting and impairment (effective for annual periods beginning on or after 1 November 2006) HK(IFRIC) −Int 11 HKFRS 2: Group and treasury share transactions (effective for annual periods beginning on or after 1 March 2007) HK(IFRIC) −Int 12 Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008)

4. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA and the applicable disclosures required by the Rules Governing the Listing of Securities on the GEM of the Stock Exchange and by the Hong Kong Companies Ordinance. The consolidated financial statements are prepared under the historical cost convention except for financial instruments, which are stated at fair value. A summary of the significant accounting policies adopted by the Group is set out below.

a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant inter-company transactions, balances and unrealised gains on transactions within the Group are eliminated on consolidation.

b) Revenue recognition

Income from the production of films and television movies is recognised when the production is completed, which is usually upon delivery of the film negatives to the customers.

Income from the distribution of films is recognised when the master materials have been delivered to customers.

Interest income is accrued on a time proportion basis, by reference to the principal outstanding and at the interest rate applicable.

c) Impairment

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the

– 24 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation increase.

d) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items of income or expense that are never taxable and deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity in which case the deferred tax is also dealt with in equity.

e) Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses.

Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account their estimated residual values, using the straight-line method, at the following rates per annum:

Leasehold improvements 20% Furniture and fixtures 20% Machinery and equipment 10%-20% Motor vehicles 20% Office equipment 20%

– 25 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in the year in which the item is derecognised.

Property, plant and equipment held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the terms of the relevant leases.

f) Subsidiaries

A subsidiary is a company controlled by the Company. A subsidiary is considered to be controlled if the Company has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from its activities.

Investments in subsidiaries are included in the Company’s balance sheet at cost less provision for impairment loss, if necessary. The results of subsidiaries are accounted for by the Company to the extent of dividends received and receivable during the year.

g) Film rights

Film rights represent film produced or acquired by the Group and are stated at cost less accumulated amortisation and any identified impairment losses.

The cost of film rights is amortised in the proportion of actual income earned during the year to the total estimated income after taking into account their estimated residual value. Where there is an impairment in value, the unamortised balance is written down to its estimated recoverable amount. The estimated residual value is recognised as a non-current asset.

The portion of film rights expect to be amortised within twelve months from the balance sheet date is reported as current asset. The portion of films rights expected not to amortise within twelve months from the balance sheet date is recognised as a non-current asset.

h) Production in progress

Production in progress represents films and television series under production and is stated at production costs incurred to date, less foreseeable losses. Such production costs are carried forward as production in progress in the balance sheet and are transferred to film production costs in the income statement upon completion.

i) Films in progress

Films in progress represents films and television series under production and is stated at production costs incurred to date, less any identified impairment loss. Such production costs are transferred to film rights upon completion of production.

j) Leased assets

i) Finance leases

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at their fair values at the date of acquisition. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation.

Payments to the lessor are treated as consisting of capital and interest elements. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce an approximately periodic rate of charge on the remaining balance of the obligations for each accounting period.

– 26 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

ii) Operating leases

All other leases are classified as operating leases and the annual rentals are charged to income statement on a straight-line basis over the relevant lease terms.

k) Receipt in advance

Receipt in advance represents deposits received from film companies before the completion of production of films and television movies pursuant to the production agreements and will be recognised as income when the production has been completed.

l) Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the year in which they arise, except for exchange differences arising on a monetary item that forms part of the Company’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financial statements.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the year, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the year in which the foreign operation is disposed of.

m) Related party

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or entities and include entities which are controlled or under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

n) Provision and contingencies

A provision is recognised when there is a present obligation, legal or constructive, as a result of past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed regularly and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.

– 27 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

o) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Company’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

p) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are charged to the income statement in the year in which they are incurred.

q) Employee benefits

i) Bonuses

The Group recognises a liability for bonuses when there is a contractual obligation and the amount can be estimated reliably.

ii) Retirement benefit obligations

The Group operates a Mandatory Provident Fund Scheme (the “MPF Scheme”) under the Hong Kong Mandatory Provident Fund Schemes Ordinance for those employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF Scheme is a defined contribution scheme, the assets of which are held in separate trustee-administered funds.

Under the MPF scheme, the employer and its employees are each required to make contributions to the scheme at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$20,000. The Group’s contributions to the scheme are expensed as incurred and vested in accordance with the scheme’s vesting scales. Where employees leave the scheme prior to the full vesting of the employer’s contributions, the amount of forfeited contributions is used to reduce the contributions payable by the Group.

iii) Share-based payment expenses

The fair value of the employee services received in exchange for the grant of the share options is recognised as an expense in the income statement on a straight-line basis over the vesting period, with a corresponding increase in equity (Share-based compensation reserve).

The total amount to be expensed over the vesting period is determined with reference to the fair value of the share options granted. At each balance sheet date, the Company revises its estimates of the number of share options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity (Share-based compensation reserve) in the balance sheet will be made over the remaining vesting periods.

The proceeds received, net of any directly attributable transaction cost, are credited to share capital and share premium accounts when the share options are exercised. When the share options are still not exercised at the expiry date, the amount previously recognised in share-based compensation reserve will be transferred to retained profits.

– 28 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

r) Financial instruments

Financial assets and financial liabilities are recognised on the balance sheet when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into one of the four categories, including financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss has two subcategories, including financial assets held for trading and those designated at fair value through profit or loss on initial recognition.

A financial asset other than a financial asset held for trading may be designated as at fair value through profit or loss upon initial recognition if:

such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
the financial asset form part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
it forms part of a contract containing one or more embedded derivatives, and HKAS 39 permits the entire combined contract (asset or liability) to be designated as at fair value through profit or loss.

At each balance sheet date subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value, with changes in fair value recognised directly in profit or loss in the year in which they arise.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and bills receivables, prepayments, deposits and other receivables) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent year when an increase in the assets’ recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. At each balance sheet date subsequent to initial recognition, held-to-maturity investments are measured at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed on initial recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as any of the other categories (set out above). At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss. Any impairment losses on available-for-sale financial assets are recognised in profit or loss. Impairment losses on available-for-sale equity investments will not reverse in subsequent year. For available-for-sale debt investments, impairment losses are subsequently reversed if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent year.

Financial liabilities and equity instruments

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Other financial liabilities

Other financial liabilities including trade and bills payables, other payables and accruals, bank borrowings and obligations under finance leases are subsequently measured at amortised cost, using the effective interest rate method.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

For financial liabilities, they are removed from the Group’s balance sheet (i.e. when the obligation specified in the relevant contract is discharged, cancelled or expired). The difference between the carrying amount of the financial liability derecognised and the consideration received or receivable is recognised in profit or loss.

s) Convertible bonds

Convertible bonds issued by the Company that contain both the liability and conversion option components are classified separately into respective items on initial recognition. Conversion option will be settled by the exchange of a fixed amount of cash or another financial asset for a fixed number of the Company’s own equity instruments as an equity instrument.

On initial recognition, the fair value of the liability component is determined using the prevailing market interest rate of similar non-convertible debts. The difference between the proceeds of the issue of the convertible bonds and the fair value assigned to the liability component, representing the conversion option for the holder to convert the bonds into equity, is included in equity (convertible bond reserve).

In subsequent year, the liability component of the convertible bonds is carried at amortised cost using the effective interest method. The equity component, represented by the option to convert the liability component into ordinary shares of the Company, will remain in convertible bond reserve until the conversion option is exercised (in which case the balance stated in convertible bond reserve will be transferred to share premium). Where the option remains unexercised at the expiry date, the balance stated in convertible bond reserve will be released to the retained profits. No gain or loss is recognised in profit or loss upon conversion or expiration of the option.

Transaction costs that relate to the issue of the convertible bonds are allocated to the liability and equity components in proportion to the allocation of the proceeds. Transaction costs relating to the equity component are charged directly to equity, Transaction costs relating to the liability component are included in the carrying amount of the liability component and amortised over the year of the convertible bonds using the effective interest method.

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. FINANCIAL INSTRUMENTS

a) Financial risk management objectives and policies

The Group’s major financial instruments include debtors, bank balances and cash, creditors, amounts due to related parties, bank borrowings and convertible bonds. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented in a timely and an effective manner.

i) Credit risk

The Group’s credit risk is primarily attributable to trade or other receivables. The Group’s sales are made to several major customers. To minimise the concentration of credit risk, it has policies in place to ensure that films are only licensed or distributed to reputable and creditworthy customers. Deposits are received in advance from most of the customers. The exposure to these credit risks are also monitored on an ongoing basis.

ii) Liquidity risk

The Group manages its liquidity risk by regularly monitoring current and expected liquidity requirements and ensuring sufficient liquid cash and adequate committed lines of funding from major financial institutions and related companies to meet the Group’s liquidity requirements in the short and long term.

iii) Interest rate risk

The Group’s exposure to changes in interest rate relates primarily to the Group’s cash and cash equivalents, bank deposits, the borrowings from banks and related companies and convertible bonds. The Group does not use financial derivatives to hedge against the interest rate risk. The Group monitors the interest rate risk exposure on a continuous basis and adjust the portfolio of borrowings where necessary.

iv) Foreign exchange risk

The Group mainly operates in Hong Kong with most of the transactions settled in Hong Kong dollars or United States dollars. The Group did not have significant exposure to foreign exchange risk.

b) Fair value

The fair value of financial assets and financial liabilities are determined as follows:

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices; and
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.

Except as indicated in the financial statements, the directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate to their fair values.

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

a) Impairment of film rights

The Group performs annual tests on whether there has been impairment of film rights in accordance with the accounting policy stated in note 4(g). The recoverable amounts of cash-generating units are determined based on value-in-use calculations. These calculations require the use of estimates and assumptions made by management on the future operation of the business, pre-tax discount rates and other assumptions underlying the value-in-use calculations.

b) Trade debtors

The aged debt profile of trade debtors is reviewed on a regular basis to ensure that the trade debtor balances are collectible and follow up actions are promptly carried out if the agreed credit periods have been exceeded. However, from time to time, the Group may experience delays in collection. Where recoverability of trade debtor balances are called into doubts, specific provisions for bad and doubtful debts are made based on credit status of the customers, the aged analysis of the trade receivable balances and write-off history. Certain receivables may be initially identified as collectible, yet subsequently become uncollectible and result in a subsequent write-off of the related receivable to the income statement. Changes in the collectibility of trade receivables for which provisions are not made could affect the Group’s results of operations.

c) Useful lives of property, plant and equipment

In accordance with HKAS 16, the Group estimates the useful lives of property, plant and equipment in order to determine the amount of depreciation expenses to be recorded. The useful lives are estimated at the time the asset is acquired based on historical experience, the expected usage, wear and tear of the assets, as well as technical obsolescence arising from changes in the market demands or service output of the assets. The Group also performs annual reviews on whether the assumptions made on useful lives continue to be valid.

d) Impairment of films in progress

The management of the Group reviews an ageing analysis at each balance sheet date, and identify the slow-moving films in progress that are no longer suitable for use in production. The management estimates the net realisable value for such finished goods of the films in progress based on value-in-use calculations. In addition, the Group carries out review on each film at each balance sheet date and makes allowance for any films in progress that production no longer proceed.

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. TURNOVER AND OTHER REVENUE

Turnover Film production Film distribution Other revenue Gain on disposal of property, plant and equipment Bank interest income Sundry income Total income	2007 HK$’000 22,030 40,258 62,288	2006 HK$’000 7,930 9,328
		17,258

	– 183 630 813	53 29 447
		529
	63,101	17,787

8. BUSINESS AND GEOGRAPHICAL SEGMENTS

a) Business segments

For management purposes, the Group is currently organised into three operating divisions, namely, film production, film distribution and television movies production. These divisions are the basis on which the Group reports its primary segment information.

Income statement

Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 22,030 7,930 40,258 9,328 – – 62,288 17,258 Segment profit/(loss) 4,684 1,664 4,654 (320) – – 9,338 1,344 Unallocated corporate income 813 529 Unallocated corporate expenses (24,484) (19,378 Loss from operations (14,333) (17,505 Finance costs (1,821) (680 Loss before taxation (16,154) (18,185 Income tax – – Loss for the year attributable to equity holders of the Company (16,154) (18,185	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 22,030 7,930 40,258 9,328 – – 62,288 17,258 Segment profit/(loss) 4,684 1,664 4,654 (320) – – 9,338 1,344 Unallocated corporate income 813 529 Unallocated corporate expenses (24,484) (19,378 Loss from operations (14,333) (17,505 Finance costs (1,821) (680 Loss before taxation (16,154) (18,185 Income tax – – Loss for the year attributable to equity holders of the Company (16,154) (18,185	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 22,030 7,930 40,258 9,328 – – 62,288 17,258 Segment profit/(loss) 4,684 1,664 4,654 (320) – – 9,338 1,344 Unallocated corporate income 813 529 Unallocated corporate expenses (24,484) (19,378 Loss from operations (14,333) (17,505 Finance costs (1,821) (680 Loss before taxation (16,154) (18,185 Income tax – – Loss for the year attributable to equity holders of the Company (16,154) (18,185	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Turnover 22,030 7,930 40,258 9,328 – – 62,288 17,258 Segment profit/(loss) 4,684 1,664 4,654 (320) – – 9,338 1,344 Unallocated corporate income 813 529 Unallocated corporate expenses (24,484) (19,378 Loss from operations (14,333) (17,505 Finance costs (1,821) (680 Loss before taxation (16,154) (18,185 Income tax – – Loss for the year attributable to equity holders of the Company (16,154) (18,185

			1,344
		813 (24,484) (14,333) (1,821) (16,154) –	529 (19,378
			(17,505 (680
			(18,185 –
		(16,154)	(18,185

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Balance sheet

Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 29,547 16,297 25,239 11,849 500 500 55,286 28,646 Unallocated corporate assets 35,500 16,129 Consolidated total assets 90,786 44,775 Segment liabilities (43,028) (28,466) (6,081) (5,806) – – (49,109) (34,272 Unallocated corporate liabilities (59,821) (20,456 Consolidated total liabilities (108,930) (54,728	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 29,547 16,297 25,239 11,849 500 500 55,286 28,646 Unallocated corporate assets 35,500 16,129 Consolidated total assets 90,786 44,775 Segment liabilities (43,028) (28,466) (6,081) (5,806) – – (49,109) (34,272 Unallocated corporate liabilities (59,821) (20,456 Consolidated total liabilities (108,930) (54,728	Film production Film distribution Television movies production Consolidated 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 29,547 16,297 25,239 11,849 500 500 55,286 28,646 Unallocated corporate assets 35,500 16,129 Consolidated total assets 90,786 44,775 Segment liabilities (43,028) (28,466) (6,081) (5,806) – – (49,109) (34,272 Unallocated corporate liabilities (59,821) (20,456 Consolidated total liabilities (108,930) (54,728
	35,500	16,129
–	90,786 (49,109)	44,775

		(34,272
	(59,821)	(20,456
(108,930)		(54,728

Other information

					Television movies	Television movies
	Film production		Film distribution		production		Unallocated		Consolidated
	2007	2006	2007	2006	2007	2006	2007	2006	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Additions of property,
plant and equipment	–	–	–	–	–	–	2,195	585	2,195	585
Depreciation	–	–	–	–	–	–	3,941	3,752	3,941	3,752
Additions of film rights	–	–	27,196	12,431	–	–	–	–	27,196	12,431
Amortisation of film
rights	–	–	30,058	7,172	–	–	–	–	30,058	7,172
Impairment loss of films
in progress	–	–	1,600	–	–	–	–	–	1,600	–
Gain on disposal of
property, plant and
equipment	–	–	–	–	–	–	–	53	–	53

b) Geographical segments

The Group’s revenue are derived from Hong Kong and overseas distribution. The following table provides an analysis of the group’s sales revenue by geographical market:

Hong Kong Overseas	2007 HK$’000 36,656 25,632 62,288	2006 HK$’000 14,283 2,975
		17,258

All of the Group’s assets are located in Hong Kong during the year.

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. LOSS FROM OPERATIONS

Loss from operations has been arrived at after charging/(crediting):

	2007	2006
	HK$’000	HK$’000
Auditors’ remuneration	220	220
Contributions to retirement benefits scheme (included in staff costs)	167	175
Amortisation of film rights (included in cost of sales)	30,058	7,172
Impairment loss of films in progress (included in cost of sales)	1,600	–
Production costs (included in cost of sales)	17,346	6,266
Depreciation of property, plant and equipment	3,941	3,752
Operating lease rental in respect of land and buildings	1,866	1,800
Share-based payment	–	1,030
Staff costs including directors’ emoluments	10,654	10,058
Bank interest income	(183)	(29)
Gain on disposal of property, plant and equipment	–	(53)

10. FINANCE COSTS

Interests on: Bank loans wholly repayable within five years Amounts due to related companies (Note 31(b)) Interest on convertible bonds wholly repayable within five years (Note 26) Finance charges on finance leases	2007 HK$’000 10 1,545 221 45 1,821	2006 HK$’000 202 465 – 13
		680

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. DIRECTORS’ EMOLUMENTS

The remuneration of every director of the Company for the year is analysed as follows:

For the year ended 31 March 2007

Executive directors Mr. Law Sau Yiu, Dennis Ms. Teng Chia Lin, Chialina Ms. Chan Dao Ho Independent non-executive directors Mr. Lung Hak Kau Ms. Wai Lai Yung Ms. Tsang Kei Ling	Directors’ fee HK$’000 – – – 96 96 60 252	Salaries and other allowances HK$’000 1,800 456 757 – – – 3,013	Share-based payment HK$’000 – – – – – – –	Retirement benefits scheme contribution HK$’000 12 12 12 – – – 36	Total HK$’000 1,812 468 769 96 96 60
					3,301

For the year ended 31 March 2006

Executive directors Mr. Law Sau Yiu, Dennis Ms. Teng Chia Lin, Chialina Ms. Chan Dao Ho (Note i) Mr. To Kei Fung (Note ii) Independent non-executive directors Mr. Lung Hak Kau Ms. Wai Lai Yung Ms. Tsang Kei Ling	Directors’ fee HK$’000 – – – – 96 96 60 252	Salaries and other allowances HK$’000 1,800 456 450 1,040 – – – 3,746	Share-based payment HK$’000 – – – – – – – –	Retirement benefits scheme contribution HK$’000 12 12 7 4 – – – 35	Total HK$’000 1,812 468 457 1,044 96 96 60
					4,033

Notes:

i) Ms. Chan Dao Ho was appointed on 16 August 2005.
ii) Mr. To Kei Fung resigned the executive director on 1 August 2005 and remained as the chief executive officer of the Company.

– 37 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

During the years ended 31 March 2007 and 2006, no emoluments or incentive payments were paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors has waived any emoluments during the years ended 31 March 2007 and 2006.

All the executive directors, except Ms. Chan Dao Ho, entered into a service contract shall continue thereafter until terminated by giving to the other party not less than six months’ notice in writing.

12. EMPLOYEES’ EMOLUMENTS

The five highest paid individuals of the Group for the year include:

Number of directors Number of other individuals	2007 3 2 5	2006 2 3
		5

The emoluments of the directors of the Group are disclosed in note 11. Details of the emoluments of the remaining individuals are as follows:

Salaries and other allowances Retirement benefits scheme contributions Share-based payment	2007 HK$’000 4,500 24 – 4,524	2006 HK$’000 3,350 25 1,030
		4,405

The emoluments of the remaining individuals fell within the following bands:

Emoluments bands Nil – HK$1,000,000 HK$3,500,001 – HK$4,000,000 HK$4,000,001 – HK$4,500,000	Number of individuals 2007 2006 1 2 – 1 1 – 2 3	Number of individuals 2007 2006 1 2 – 1 1 – 2 3
		3

During the years ended 31 March 2007 and 2006, no emoluments or incentive payments were paid or payable to the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

13. INCOME TAX

No provision for Hong Kong profits tax has been made in the financial statements as the Company and its subsidiaries have no assessable profits for the years ended 31 March 2007 and 2006.

– 38 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Income tax for the year can be reconciled to the loss before taxation per the consolidated income statement as follows:

Loss before taxation Tax at the Hong Kong profits tax rate of 17.5% (2006: 17.5%) Tax effect of unrecognised tax losses Tax effect of non-taxable incomes Tax effect of non-deductible expenses Tax effect of tax losses utilised Tax effect of unrecognised temporary differences Income tax for the year	2007 HK$’000 (16,154)	2006 HK$’000 (18,185) (3,182) 3,151 (15) 46 – – –
	(2,827) 1,955 (32) 739 (238) 403	(3,182 3,151 (15 46 – –
	–

14. LOSS FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The consolidated loss attributable to equity holders of the Company is dealt with in the financial statements of the Company to the extent of loss of approximately HK$4,632,000 for the year ended 31 March 2007 (2006: approximately HK$9,006,000).

15. LOSS PER SHARE

The calculation of basic and diluted loss per share is based on the following data:

Net loss attributable to equity holders of the Company Weighted average number of shares for basic loss per share (thousand) Loss per share – Basic – Diluted Notes:	2007 HK$’000 (16,154) 85,600 (HK18.9 cents) N/A	2006 HK$’000 (18,185) (Restated) (note (i)) 80,500 (Restated) (HK22.6 cents) N/A

(i) The weighted average number of ordinary shares for the year ended 31 March 2006 for the purposes of basic loss per share has been adjusted for the share consolidation completed during the year.
(ii) No diluted loss per share has been presented for the years ended 31 March 2007 and 2006 as the conversion of all potential ordinary shares arising from share options granted by the Company and convertible bonds would have an anti-dilutive effect on the loss per share for the years ended 31 March 2007 and 2006.

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. FILM RIGHTS AND FILMS IN PROGRESS

The Group

Film rights HK$’000 – – 12,431	Films in progress HK$’000 9,604 9,310 (12,431)	Total HK$’000 9,604 9,310 –
12,431 12,431 – 27,196 39,627 – 7,172 7,172 7,172 30,058 – 37,230	6,483 6,483 31,423 (27,196) 10,710 – – – – – 1,600 1,600	18,914
		18,914 31,423 –
		50,337
		– 7,172
		7,172
		7,172 30,058 1,600
		38,830
2,397 5,259	9,110 6,483	11,507

		11,742

– 2,397	– 9,110	– 11,507
2,397	9,110	11,507

277 4,982	– 6,483	277 11,465
5,259	6,483	11,742

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

During the year, the Group assessed the recoverable amounts of film rights and films in progress and determined that the films in progress associated with the Group’s film distribution operations was impaired by HK$1,600,000 (2006: HK$Nil). The recoverable amounts of film rights and films in progress were assessed by the directors of the Company with reference to the value-in-use calculations of film rights and films in progress as at the balance sheet date.

17. PROPERTY, PLANT AND EQUIPMENT

The Group

Leasehold improvements HK$’000 Cost At 1 April 2005 4,023 Additions – Disposal – At 31 March 2006 4,023 At 1 April 2006 4,023 Additions 222 At 31 March 2007 4,245 Accumulated depreciation At 1 April 2005 1,670 Charge for the year 805 Eliminated on disposal – At 31 March 2006 2,475 At 1 April 2006 2,475 Charge for the year 815 At 31 March 2007 3,290 Net book value At 31 March 2007 955 At 31 March 2006 1,548	Furniture and fixtures HK$’000 716 9 –	Machinery and equipment HK$’000 16,645 21 –	Motor vehicles HK$’000 459 468 (459)	Office equipment HK$’000 1,710 87 (4)	Total HK$’000 23,553 585 (463) 23,675 23,675 2,195 25,870 8,503 3,752 (278) 11,977 11,977 3,941 15,918 9,952 11,698
4,023 4,023 222 4,245 1,670 805 – 2,475 2,475 815 3,290	725 725 53 778 319 143 – 462 462 149 611	16,666 16,666 1,067 17,733 5,375 2,418 – 7,793 7,793 2,523 10,316	468 468 308 776 253 78 (275) 56 56 114 170	1,793 1,793 545 2,338 886 308 (3) 1,191 1,191 340 1,531	23,675
					23,675 2,195
					25,870
					8,503 3,752 (278
					11,977
					11,977 3,941
					15,918
955 1,548	167 263	7,417 8,873	606 412	807 602

At 31 March 2007, the net book value of certain motor vehicles and office equipment of the Group of approximately HK$1,068,000 (2006: HK$412,000) were held under finance leases.

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Non-current portion Amounts due from subsidiaries (Notes (i) and (iii)) Allowance for amounts due from subsidiaries Current portion Amount due from subsidiaries (Notes (ii) and (iii)) Allowance for amounts due from subsidiaries	The Company 2007 2006 HK$’000 HK$’000 78 78 5,990 22,638 (5,600) (22,200) 390 438 468 516 37,170 – (21,100) – 16,070 –	The Company 2007 2006 HK$’000 HK$’000 78 78 5,990 22,638 (5,600) (22,200) 390 438 468 516 37,170 – (21,100) – 16,070 –
	5,990 (5,600) 390	22,638 (22,200
		438
	468
	37,170 (21,100)	– –
	16,070

Notes:

i) The amounts due from subsidiaries are unsecured, non-interest bearing and have no fixed repayment terms. In the opinion of the Company directors, the amount will not be repayable in the next twelve months after the balance sheet date.

The Company has undertaken to provide necessary financial resources to support the future operations of the subsidiaries.

ii) The amounts due from subsidiaries are unsecured and non-interest bearing, except for an amount of HK$15,000,000 (2006: HK$Nil) which bear interest at the rate of three-month HIBOR plus 0.85%. Included in amounts due from subsidiaries of approximately HK$37,170,000 are the amounts due from two subsidiaries, Milkyway Image (Hong Kong) Limited and Luminous Star Limited (the “Disposal Subsidiaries”), of approximately HK$35,345,000 (2006: HK$13,765,000 included in non-current portion) and HK$1,825,000 (2006: HK$216,000 included in non-current portion), in the opinion of the Company’s directors, the amounts due from the Disposal Subsidiaries will be reassigned to the Purchaser after the completion of the sale of the Disposal Subsidiaries, as further detailed in Note 33(b). Therefore, the amounts due from the Disposal Subsidiaries as at 31 March 2007 are classified as current asset.
iii) The Company’s directors consider that in light of the recurring operating losses of certain subsidiaries, the recoverable amounts of these subsidiaries have been reduced to the estimated net realisable value of their identifiable net assets. Accordingly, the impairment losses of amounts due from subsidiaries of approximately HK$5,600,000 included in non-current portion (2006: approximately HK$22,200,000) and HK$21,100,000 included in current portion (2006: HK$Nil) were recognised in the Company’s financial statements for the year ended 31 March 2007.

The impairment losses associated with the Group’s film production and film distribution operations were approximately HK$25,611,000 for the year ended 31 March 2007 (2006: approximately HK$21,111,000), while the remaining amounts are associated with the unallocated corporate unit.

The Company’s directors consider that the carrying amounts of amounts due from subsidiaries approximate their fair value.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

iv) The details of the subsidiaries of the Company as at 31 March 2007 are as follows:

	Country/	Issued and
	place of	fully paid	Interest
Name of subsidiary	incorporation	share capital	held	Principal activities
Galaxy Image (BVI)	British Virgin	US$10,000	100%	Investment holding
Limited	Islands
Inspire Film Distribution	Hong Kong	HK$2	100%	Provision of film
Limited				distribution
Luminous Star Limited	Hong Kong	HK$2	100%	Assets holding and
				provision of film
				production facilities
Point of View Movie	Hong Kong	HK$2	100%	Provision of film
Production Company				production and film
Limited				distribution
Milkyway Image (Hong	Hong Kong	HK$10,000	100%	Provision of film
Kong) Limited				production, film
(“MIHK”)				distribution and
				television movies
				production
Milkyway Image Limited	Hong Kong	HK$2	100%	Holding of film rights

Galaxy Image (BVI) Limited is directly held by the Company. All the other subsidiaries are indirectly held by the Company.

The principal place of operation of all the subsidiaries is in Hong Kong.

None of the subsidiaries had any debt securities outstanding at the end of the year or at any time during the years ended 31 March 2007 and 2006.

19. TRADE DEBTORS

Credit periods given to customers or dealers ranged from 30 to 180 days. The aged analysis of the trade debtors is as follows:

Within 30 days 31 – 90 days 91 – 180 days 181 – 365 days Over 365 days	The Group 2007 2006 HK$’000 HK$’000 3,506 125 91 182 7,280 1 2,902 109 33 – 13,812 417	The Group 2007 2006 HK$’000 HK$’000 3,506 125 91 182 7,280 1 2,902 109 33 – 13,812 417
		417

The Company’s directors consider that the carrying amount of trade debtors approximates their fair value.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. TRADE CREDITORS

The aged analysis of the trade creditors is as follows:

Within 6 months Over 1 year	The Group 2007 2006 HK$’000 HK$’000 2,693 2,459 69 – 2,762 2,459	The Group 2007 2006 HK$’000 HK$’000 2,693 2,459 69 – 2,762 2,459
		2,459

The Company’s directors consider that the carrying amount of trade creditors approximates their fair value.

21. AMOUNTS DUE TO DIRECTORS

The Group and the Company

The amounts represent accrued salaries to directors during the years ended 31 March 2007 and 2006, which are unsecured, non-interest bearing and have no fixed repayment terms.

22. OBLIGATIONS UNDER FINANCE LEASES

At the balance sheet date, the Group had obligations under finance leases repayable as follows:

Amounts payable under finance leases: Within one year More than one year but within two years More than two years but within five years Less: Future finance charges Present value of lease obligations Less: Amounts due for payment within one year	The Group Minimum leases payments Present value of minimum leases payments 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 414 59 380 41 175 56 244 44 85 140 – 127 674 255 624 212 (50) (43) 624 212 (380) (41) 244 171	The Group Minimum leases payments Present value of minimum leases payments 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 414 59 380 41 175 56 244 44 85 140 – 127 674 255 624 212 (50) (43) 624 212 (380) (41) 244 171	The Group Minimum leases payments Present value of minimum leases payments 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 414 59 380 41 175 56 244 44 85 140 – 127 674 255 624 212 (50) (43) 624 212 (380) (41) 244 171	The Group Minimum leases payments Present value of minimum leases payments 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 414 59 380 41 175 56 244 44 85 140 – 127 674 255 624 212 (50) (43) 624 212 (380) (41) 244 171
				212
			(380)	(41)
			244	171

The lease term ranges from four to five years and the average effective borrowing rate is 8.3% during the years ended 31 March 2007 and 2006. Interest rates are fixed at the contract date, and thus expose the Group to fair value interest rate risk. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The Company directors consider that the fair value of the Group’s lease obligations approximates their carrying amount at each balance sheet date.

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Group’s obligations under finance leases are secured by the lessors’ title to the leased assets.

23. BANK LOAN

						The	Group
						2007	2006
						HK$’000	HK$’000
Bank	loan	repayable	within	one	year	–	3,000

The bank loan of approximately HK$3,000,000 as at 31 March 2006 was charged at the interest rate of three-month HIBOR plus 0.85%. The bank loan was secured by the listed securities and personal guarantee given by a director of the Company (Note 31(a)).

24. SHARE CAPITAL

Authorised: At 1 April 2005 and 31 March 2006, ordinary shares of HK$0.01 each Consolidation of shares (Note (ii)) At 31 March 2007, ordinary shares of HK$0.1 each Issued and fully paid: At 1 April 2005 and 31 March 2006 ordinary shares of HK$0.01 each Issue of shares (Note (i)) Consolidation of shares (Note (ii)) Ordinary shares of HK$0.1 each Conversion into shares from convertible bonds At 31 March 2007, ordinary shares of HK$0.1 each	Number of shares 10,000,000,000 (9,000,000,000) 1,000,000,000	Amount HK$’000 100,000 –
		100,000

	805,000,000 161,000,000 966,000,000 (869,400,000) 96,600,000 9,600,000	8,050 1,610
		9,660 –
		9,660 960
	106,200,000	10,620

Notes:

i) On 28 November 2006, the Company entered into a placing agreement with Kingston Securities Limited, an independent third party, for placing of 161,000,000 ordinary shares of the Company of HK$0.01 at HK$0.022 per each to independent investors. On 14 December 2006, the Company issued and allotted 161,000,000 shares with the gross proceeds of approximately HK$3,542,000 before expenses. The details of the share placing are set out in the Company’s announcement dated 28 November 2006.
ii) By an ordinary resolution passed by the shareholders of the Company on 10 January 2007, every 10 of the ordinary shares of the Company (both issued and unissued) of HK$0.01 each were consolidated into one new share (“New Share”) of HK$0.1 each (the “Share Consolidation”). The Share Consolidation became effective on 11 January 2007. The details of the Share Consolidation are set out in the Company’s announcement dated 10 January 2007.

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. RESERVES

Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Attributable to equity holders of the Company Share Premium Contributed surplus Share-based compensation reserves Convertible bond reserves Accumulated losses HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 15,050 10 – – (15,908) – – – – (18,185) – – 1,030 – –	Total HK$’000 (848 (18,185 1,030
15,050 – 1,932 (159) – 1,251	10 – – – – –	1,030 – – – – –	– – – – 2,692 (323)	(34,093) (16,154) – – – –	(18,003 (16,154 1,932 (159 2,692 928
18,074	10	1,030	2,369	(50,247)	(28,764

15,050 – – 15,050 – 1,932 (159) – 1,251	78 – – 78 – – – – –	– – 1,030 1,030 – – – – –	– – – – – – – 2,692 (323)	(15,978) (9,006) – (24,984) (4,632) – – – –	(850 (9,006 1,030
					(8,826 (4,632 1,932 (159 2,692 928
18,074	78	1,030	2,369	(29,616)	(8,065

The contributed surplus of the Group represents the difference between the nominal value of the shares of the subsidiaries acquired and the nominal value of the shares of the Company issued for the acquisition at the time of the reorganisation of the Group.

In accordance with the laws of the Cayman Islands, the Company’s share premium and contributed surplus are distributable to the shareholders of the Company subject to the Company’s articles of association and provided that immediately following the distribution of dividends, the Company will be in a position to pay off its debts as and when they fall due in the ordinary course of business.

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

26. CONVERTIBLE BONDS

On 30 January 2007, the Company issued two tranches of convertible bonds (the “Bonds”) with total nominal value of HK$20,000,000 at the price of HK$18,200,000. The Bonds are non-interest bearing and will be redeemed within three years (“Conversion Period”) from the date of issue at the Bonds’ nominal value.

The Bonds can be converted into ordinary shares of the Company of HK$0.1 each at any time during the Conversion Period at fixed conversion price being HK$0.25. The Company may redeem any bond during the Conversion Period at the price of 105% of the Bonds’ nominal value.

The fair values of the liability component and the equity conversion component were determined at issuance of the Bonds. The fair value of the liability component, included in long-term borrowings, was calculated at effective interest rate of 8.51% per annum. The residual amount, representing the value of the equity conversion component, is included in equity.

During the year ended 31 March 2007, the Bonds with the nominal value HK$2,400,000 were converted into 9,600,000 New Shares of the Company of HK$0.1 each at a conversion price of HK$0.25 per share.

The convertible bonds recognised in the balance sheet are calculated as follows:

Proceeds from convertible bonds issued on 30 January 2007 Equity component (Note 25) Liability component on initial recognition at 30 January 2007 Accrued interest capitalised (Note 10) Conversion into shares Liability component at 31 March 2007	The Group and the Company 2007 2006 HK$’000 HK$’000 18,200 – (2,692) –	The Group and the Company 2007 2006 HK$’000 HK$’000 18,200 – (2,692) –
	15,508 221 (1,888)	– – –
	13,841	–

27. DEFERRED TAXATION

The Group

The followings are the deferred tax liabilities and assets recognised by the Group and movements thereon:

At 1 April 2005 Charge/(credit) to income statement At 31 March 2006 and 1 April 2006 Charge/(credit) to income statement At 31 March 2007	Accelerated tax depreciation HK$’000 2,059 (420)	Estimated tax losses HK$’000 (2,059) 420	Total HK$’000 – –
	1,639 (575)	(1,639) 575	– –
	1,064	(1,064)	–

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

At 31 March 2007, the Group did not recognise deferred tax assets in respect of the tax losses of approximately HK$44,559,000 (2006: HK$24,105,000). As it is not probable that taxable profits will be available against which the unused tax losses of the Group can be utilised, deferred tax assets have not been recognised in respect of the unused tax losses. Tax losses are available indefinitely for offsetting future taxable profits of the companies in which the losses arose.

28. PROVISIONS

			The	Group
			2007	2006
			HK$’000	HK$’000
Provision	for	litigation	4,000	–

During the year, an individual engaged by the Company’s subsidiary MIHK in 2003, lodged a statement of claim in the High Court in Hong Kong against MIHK in respect of a personal injury purported to have been suffered during his engagement with MIHK in 2003. If MIHK is found to be liable, the total expected monetary compensation may amount to approximately HK$4,000,000. The provision for litigation of HK$4,000,000 is made in the consolidated financial statements for the year ended 31 March 2007.

29. COMMITMENTS

a) Operating lease commitments

At 31 March 2007, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of rented premises which fall due as follows:

Within one year In the second to fifth year inclusive	The Group 2007 2006 HK$’000 HK$’000 1,124 1,800 249 750 1,373 2,550	The Group 2007 2006 HK$’000 HK$’000 1,124 1,800 249 750 1,373 2,550
		2,550

Operating lease payments represent rentals payable by the Group for its office premises. Leases are negotiated for a term ranging from 2 years to 3 years and rentals were fixed for the year.

The Company had no significant lease commitments at the balance sheet date.

b) Other commitments

Contracted but not provided for in the financial statements in respect of: – film production costs	The Group 2007 2006 HK$’000 HK$’000 14,011 18,480

The Company had no other commitments at the balance sheet date.

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. CONTINGENT LIABILITIES

The Group and the Company have no contingent liabilities at the balance sheet date.

31. RELATED PARTY TRANSACTIONS

a) During the year ended 31 March 2006, the Company director Mr. Law Sau Yiu, Dennis (“Mr. Law”) provided personal guarantee to a bank to secure facilities granted to the Group. The banking facilities were secured by listed securities, other than that of the Company, owned by Mr. Law having discounted market value not less than the amount of banking facility utilised by the Group from time to time. No fee in respect of the provision of personal guarantee was paid to him by the Group. The Group obtained bank loans of approximately HK$3,000,000 for the year ended 31 March 2006. The Group repaid all bank loans in April 2006 and has not obtained any further facilities provided by Mr. Law.
b) During the years ended 31 March 2007 and 2006, certain related companies provided the loan facilities to the Group as follows:
(i) Hang Hing Limited, Suki Investment Limited and Tosco Limited, which were incorporated in Hong Kong and controlled by the Company’s directors, Mr. Law Sau Yiu, Dennis and Ms. Teng Chia Lin, Chialina, granted certain loan facilities to the Group totalling approximately HK$49,000,000 for the year ended 31 March 2007 (2006: approximately HK$15,000,000). The Group drew the loan approximately HK$40,500,000 during the year (2006: approximately HK$15,000,000). The loans are unsecured, interest charged at the rate of three-month HIBOR plus 0.85% and repayable within one year.
(ii) Keep Beat Enterprises Limited, which was incorporated in British Virgin Islands and controlled by the Chief Executive Officer of the Company, Mr. To Kei Fung, granted a loan to the Group of approximately HK$3,000,000 (2006: HK$Nil). The Group drew the loan approximately HK$3,000,000 (2006: HK$Nil) during the year. The loan is unsecured, interest charged at the rate of three-month HIBOR plus 0.85% and repayable on 28 July 2007.

The details of the interest expenses charged during the year are disclosed in Note 10.

(iii) The balances due to the related companies at balance sheet date are as follows:

The Group Balances at balance sheet date Hang Hing Limited Suki Investment Limited Keep Beat Enterprises Limited Tosco Limited Outstanding interest Total per consolidated balance sheet The Company Balances at balance sheet date Hang Hing Limited Suki Investment Limited Outstanding interest Total per balance sheet	2007 HK$’000 12,000 20,500 3,000 2,000 255 37,755	2006 HK$’000 10,000 5,000 – – 97
		15,097

	12,000 3,000 129	– – –
	15,129	–

– 49 –

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

c) Compensation for key management personnel, including amount paid to the Company’s directors and certain of the highest paid employee, as disclosed in Notes 11 and 12 is as follows:

Salaries and other short-term benefits Retirement benefits scheme contribution Share-based payment	2007 HK$’000 7,345 48 – 7,393	2006 HK$’000 6,988 48 1,030
		8,066

32. SHARE OPTION SCHEMES

Pursuant to the written resolutions of the shareholders of the Company dated 2 August 2002, a share option scheme (“Share Option Scheme”) was approved and adopted.

Share Option Scheme

The major terms of the Share Option Scheme are summarised as follows:

a) The purpose of the Share Option Scheme is to enable the Group to grant share options to selected participants as incentives or rewards for their contribution to the Group.
b) The participants include:
i) (1) any employee or proposed employee of the Company, any of its subsidiaries or any entity (“Invested Entity”) in which the Group holds an equity interest, including any executive director of the Company, any of such subsidiaries or any Invested Entity;
- (2) any non-executive director (including independent non-executive directors) of the Company, any of its subsidiaries or any Invested Entity;
- (3) any supplier of goods or services to any member of the Group or any Invested Entity;
- (4) any customer of the Group or any Invested Entity;
- (5) any person or entity that provides research, development or other technological support to the Group or any Invested Entity;
- (6) any shareholder of any member of the Group or any Invested Entity or any holder or any securities issued by any member of the Group or any Invested Entity; and
- (7) any joint venture partner or counter-party to business transactions of the Group.
ii) any company wholly owned by one or more persons belonging to any of the above classes of participants.
c) The exercise price of a share option shall be a price determined by the directors and shall at least be the higher of:
i) the closing price of a share of the Company as stated in the Stock Exchange’s daily quotations sheet on the date of grant, which must be a business day; and
ii) the average closing price of a share of the Company as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant.

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

d) Maximum number of shares:
i) The total number of shares which may be issued upon exercise of all outstanding share options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of the Company must not exceed 30% of the shares in issue from time to time; and
ii) The total number of shares which may be issued upon exercise of all share options to be granted under the Share Option Scheme and any other schemes must not in aggregate, exceed 10% of the shares in issue at any time of the Share Option Scheme (the “Limit”) provided that share options lapsed in accordance with the terms of the Share Option Scheme will not be counted for the purpose of calculating the Limit.
e) The total number of shares issued and to be issued upon the exercise of share options granted and to be granted to each participant (including both exercised and outstanding options) in any 12-month period up to and including the date of grant must not exceed 1% of the shares in issue.
f) The exercisable period should be determined by the board of directors upon grant of the share option but in any event should not exceed 10 years from the date of grant of the share option.

Details of share options outstanding under the Company’s Share Option Scheme and movements during the year were as follows:

								2007	2007		2006
		At beginning of the year						64,400,000			–
		Issued during the year							–	64,400,000
		Adjustments during the year _(Note _			a)			(57,960,000)			–
		At the end of year						6,440,000		64,400,000

		Options vested during the year							–	64,400,000

Chief		Outstanding		Outstanding	Adjustments	Outstanding	Exercisable
executive	Date of	at	Granted	at	during the	at	at 31/03/	Vesting		Exercise	Exercise
officer	grant	01/04/2005	during year	31/03/2006	year	31/03/2007	2007	period		period	price
					(Note a)						(Note a)
Mr. To Kei	16/09/2005	–	64,400,000	64,400,000	(57,960,000)	6,440,000	6,440,000	N/A	20/09/2005		HK$0.4
Fung						(Note b)				to
									19/09/2015

Notes:

a) The exercise prices and numbers of options which remained outstanding during the year have been adjusted due to the completion of share consolidation during the year.
b) At 31 March 2007, the 6,440,000 outstanding shares (2006: 64,400,000 outstanding shares) represented approximately 6% (2006: approximately 8%) of the total issued share capital of the Company.
c) The exercise price represented the higher of the closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheet on 16 September 2005, date of proposed grant (i.e., HK$0.4, after adjusting the share consolidation of the Company) and a price being the average closing prices of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets for the 5 Business Days immediately preceding 16 September 2005.

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The options outstanding at the end of the year have a remaining contractual life of 8.5 years (2006: 9.5 years).

During the year ended 31 March 2006, 64,000,000 options were issued and their estimate fair value were calculated using The Black-Scholes pricing model. Exceptions of early exercise are incorporated into the model. The inputs into the model were as follows:

	2006
Share price	HK$0.04
Exercise price	HK$0.04
Expected volatility	17%
Expected life	10 years
Risk fee rate (based on Exchange Fund Notes)	4.4%
Expected dividend yield	Nil

Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous 3 years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations. Changes in the subjective input assumptions could materially affect the fair value estimate.

Share options were granted under a service condition. This condition has not been taken into account in the grant date fair value measurement of the services received. There were no market conditions associated with the share option grants.

The Group recognised total expenses related to equity-settled share-based payment transactions during the year ended 31 March 2006 of approximately HK$1,030,000.

33. POST BALANCE SHEET EVENTS

a) On 12 March 2007, the Company entered into a subscription agreement with a wholly owned subsidiary of China Star Entertainment Limited (the “Subscriber”), a company listed on the Stock Exchange and not connected with the Group, pursuant to which the Subscriber has agreed to subscribe for the convertible bonds (the “Convertible Bonds”) in a principal amount of HK$25 million to be issued by the Company at the price of HK$22.5 million. The Convertible Bonds bear no interest and will be due in 2012. The holders of the Convertible Bonds shall have the right at any time after the date of issue of the Convertible Bonds to convert any outstanding amounts of the Convertible Bonds into the Company’s New Share of HK$0.1 each at the conversion price which is initially HK$0.33 per New Share, subject to adjustments for, among other matters, subdivision or consolidation of the Company’s shares, rights issue, extraordinary stock or cash distribution, and other dilutive events. The placing of the Convertible Bonds was approved by the Company’s shareholders at the extraordinary general meeting on 18 April 2007, and the transaction was completed on 25 May 2007. The above transaction is detailed in the Company’s circular on 2 April 2007.
b) On 23 April 2007, the Group through its wholly owned subsidiary, Galaxy Image (BVI) Limited (the “Vendor”), entered into an agreement with Keep Beat Enterprises Limited (the “Purchaser”), a company was incorporated in British Virgin Islands and wholly owned by the chief executive officer of the Company, Mr. To Kei Fung, pursuant to which the Vendor will dispose of its entire interest in the Disposal Subsidiaries to the Purchaser for a total consideration of HK$26 million (the “Disposal”). The Disposal was approved by the Company’s shareholders at the extraordinary general meeting on 21 June 2007, but the Disposal has not completed at the date of this report. The above transaction is detailed in the Company’s announcement on 23 May 2007.

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

STATEMENT OF INDEBTEDNESS

Borrowings

As at the close of business on 31 October 2007, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Enlarged Group had total outstanding borrowings of approximately HK$21,758,000, comprising (i) the unsecured loans due to related parties of approximately HK$18,100,000; (ii) the convertible bonds of approximately HK$657,000, which bear no interest and will be due for repayment by May 2012; and (iii) the bank borrowing in relation to the mortgage loan of the investment property of approximately HK$3,001,000.

Debt securities

As at the close of business on 31 October 2007, the Enlarged Group did not have debt securities.

Contingent Liabilities

As at the close of business on 31 October 2007, the Enlarged Group did not have any material contingent liabilities.

Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, as at the close of business on 31 October 2007, the Enlarged Group did not have any loan capital issued and outstanding or agreed to be issued, bank overdraft, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, finance lease commitments, guarantees or other material contingent liabilities.

Foreign currency amounts have been translated into Hong Kong dollars at the approximately exchange rates prevailing at the close of business on 31 October 2007.

Save as disclosed above, the Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Enlarged Group since 31 October 2007.

WORKING CAPITAL

Taking into account financial resources available to the Enlarged Group, the Directors are of the opinion that the Enlarged Group will have sufficient working capital for its present requirements, that is for at least the next twelve months from the date of this circular.

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

MATERIAL ADVERSE CHANGE

The Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31 March 2007, being the date to which the latest published audited accounts of the Company have been made up, up to the Latest Practicable Date.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE RESULTS OF THE TARGET GROUP

The Target Group has no business, other than holding Vincent Investment. The Target Group is principally engaged in the operation of a warehouse in Canada for rental income. For the three years ended 31 March 2007, the turnover of the Target Group was approximately HK$1.29 million, HK$1.50 million and HK$1.46 million respectively, while the net profits of the Target Group was approximately HK$1.21 million, HK$1.53 million and HK$1.75 million respectively. For the seven months ended 31 October 2007, the Target Group recorded audited turnover of approximately HK$0.97 million and net profits of approximately HK$1.85 million.

The Target Group had net assets of approximately HK$10.94 million and net current liabilities of approximately HK$6.07 million as at 31 October 2007. As at 31 October 2007, the Target Group had total assets of approximately HK$22.48 million, comprising investment property of approximately HK$22.04 million, rental receivables of approximately HK$0.04 million, other receivables and prepayment of approximately HK$0.21 million and cash at bank of approximately HK$0.19 million, and total liabilities of approximately HK$11.54 million, comprising current liabilities of approximately HK$6.51 million and non-current liabilities of approximately HK$5.03 million. The Target Group had total bank borrowing of approximately HK$3.00 million (of which approximately HK$0.42 million was payable within 1 year or on demand, approximately HK$0.44 million was payable after 1 year but within 2 years and approximately HK$2.14 million was payable after 2 years but within 5 years) and amount due to ultimate holding company of approximately HK$5.63 million as at 31 October 2007. The bank borrowing was arranged at the interest rates ranging from 5.86% to 5.78% per annum and was secured by the investment property of the Target Group. The amount due to ultimate holding company was unsecured, interest-free and repayable on demand. The Target Group had a gearing ratio (calculated as total bank borrowing divided by total assets) of approximately 13.4% as at 31 October 2007. As at 31 October 2007, the Target Group had no contingent liabilities or charge on group assets save as disclosed above.

Most of the Target Group’s monetary assets and liabilities are denominated in Canadian dollars and the Target Group conducted its business transactions principally in Canadian dollars. The Target Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure if necessary.

It is presently intended that the Target Group will continue its existing business and the Target Group had no concrete plans for material investments or capital assets as at the Latest Practicable Date.

– 54 –

VALUATION REPORT

APPENDIX II

The following is the text of the letter and valuation report received from Grant Sherman and addressed to the Company in connection with its valuation as at 31 October 2007 on the Property, which has been prepared for the purpose of incorporation in this circular.

Room 904, 9/F, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong

31 December 2007

The Directors Brilliant Arts Multi-Media Holding Limited Unit 1611, 16/F, Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong

Dear Sirs/Madams,

In accordance with your instructions to value the property interests to be acquired by Brilliant Arts Multi-Media Holding Limited (“the Company”) located in British Columbia of Canada, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for providing you with our opinion of the value of the property interests as at 31 October 2007.

Our valuation of the property interests is our opinion of the market value which we would define as intended to mean the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

We have valued the properties by comparison approach assuming sale in their existing state by making reference to comparable sales evidences as available in the relevant market.

Our valuation has been made on the assumption that the Company sells the property interest on the market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the value of the property.

No allowance has been made in our report for any charges, mortgages or amounts owing on the property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect their value.

– 55 –

VALUATION REPORT

APPENDIX II

In valuing the property interests, we have complied with all the requirements contained in Chapter 8 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and The HKIS Valuation Standards on Properties (1st Edition 2005) published by The Hong Kong Institute of Surveyors.

We have caused search to be made on the title of the property, however, we have not scrutinised the original title documents. In the course of our valuation, we have relied on a considerable extent on information provided by the Company on such matters as statutory notices, easements, tenure, occupation, floor areas, identification of the property and all other relevant matters. We have had no reason to doubt the truth and accuracy of the information provided to us by the Companies which is material to the valuation. We were also advised by the Company that no material facts have been omitted from the information supplied. All documents have been used as reference only. All dimensions, measurements and areas are approximations only. In the preparation of our valuation report regarding the property in Canada, we have relied on the valuation undertaken by Mr. Ken Hollett and Ms. Melanie Jones, the professional appraisers of Accredited Appraiser Canadian Institute who has over 2 years’ valuation experience in respect of properties in Canada.

No site investigation has been carried out to determine the suitability of the ground conditions or the services for any property development thereon. Our valuation is carried out on the assumption that these aspects are satisfactory. We have also assumed that all consents, approvals and licenses from relevant government authorities for the proposals have been or will be granted without onerous conditions or delay.

Other special assumptions for the property, if any, have been stated in the footnotes of the valuation certificate.

We have carried out inspection of the property on 19 November 2007 and wherever possible, the interior of the properties included in the attached valuation certificates. During the course of our inspection, we did not note any serious defects. However, no structural survey has been made and we are therefore unable to report as to whether the properties are free from rot, infestation or other defects. No tests were carried out on any of the services.

Unless otherwise stated, all dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us by the Company and are therefore approximate. We have no reason to doubt the truth and accuracy of the information provided to us by the Company, and have been advised by the Company that no material facts have been omitted from the information provided.

We have not carried out detailed site measurements to verify the correctness of the site areas in respect of the property but have assumed that the site areas shown on the documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

Unless otherwise stated, all property values are denominated in Hong Kong Dollars. The exchange rate used in our valuation as at the Valuation Date is CAN$1 to HK$8.16154.

– 56 –

VALUATION REPORT

APPENDIX II

Our Valuation Certificate is enclosed herewith.

Yours faithfully, For and on behalf of GRANT SHERMAN APPRAISAL LIMITED Peggy Y. Y. Lai MRICS MHKIS RPS Associate Director Real Estate Group

Note: Ms. Peggy Y.Y. Lai is a Chartered Surveyor since 1996, she has extensive experience in valuation of properties in Hong Kong, the PRC, Canada and Asian Pacific Region.

– 57 –

VALUATION REPORT

APPENDIX II

VALUATION CERTIFICATE

Property interest to be acquired by the Company in Canada for investment purpose

Property

A piece of land (Lot 23 District Lot 173 Group 1 New Westminister District Plan 28236) together with buildings and structures located in Big Bend industrial area, 8321 Willard Street, Burnaby, British Columbia, Canada.

Description and Tenure

The property comprises a parcel of land with a site area of approximately 73,715 square feet on which is constructed a 2 -storey office building and 2 warehouses completed in about 1960’s.

Capital value in Particulars of existing state as at Occupancy 31 October 2007 The property is HK$22,036,158 currently used for office/warehouse purpose and is subject to various tenancy agreements. (see note iii, iv and v) .

The buildings have a total floor area of approximately 29,465 square feet. The details are as follows:

Buildings Office Building Warehouse #1 Warehouse #2 Total	Floor Area (square feet) 3,700 18,000 7,765
	29,465

Notes:

(i) Pursuant to the title search BH2947, the registered owner of the property is Vincent Investment Ltd. Inc. #456386
(ii) According to the title search, the property is subject to a Mortgage dated 5 January 1994 in favour of CIBC Mortgage Corporation under the charge order no. BH2948
(iii) According to an indenture dated 23 August 2001, Warehouse #1 is leased for a tem of 10 years commencing from 1 October 2001 to 30 September 2011. The existing monthly rent is CAN$4,000, exclusive of other expenses.

According to a Renewal Lease agreement dated 15 December 2006, a renewal term of 5 years from 1 October 2011 to 30 September 2016 will be granted to the lessee at a monthly rent of CAN$4,950 exclusive of other expenses.

(iv) According to a Renewal Lease dated 16 February 2004, Warehouse #2 and the second floor of the office building is leased for a term of 6 years commencing from 1 September 2004 to 31 August 2010. The existing monthly rent is CAN$5,964.88 exclusive of other expenses. An option to renew will be granted to the lessee for a term of 3 years at a rent to be mutually agreed.
(v) According to a Renewal Lease dated 18 October 2005, the main floor of the office building is leased for a term of 3 years commencing from 1 January 2007 to 31 December 2009. The existing monthly rent is CAN$1,819 inclusive of other expenses.

According to an addendum to Renewal lease dated 7 June 2007, an option of renewal will be granted to the lessee for a term of 5 years at a monthly rent of CAN$1,900 exclusive of tax.

– 58 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The following is the text of a report, prepared for inclusion in this circular, received from the reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

==> picture [88 x 62] intentionally omitted <==

The Directors

Brilliant Arts Multi-Media Holding Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to Grandeur Concord Limited (the “Target”) and its subsidiary (hereinafter collectively referred to as the “Target Group”) which comprises the balance sheets of the Target and the Target Group as at 31 March 2005, 2006 and 2007 and 31 October 2007, and the consolidated income statements, the consolidated statements of changes in equity and the consolidated cash flow statements of the Target Group for the three years ended 31 March 2005, 2006 and 2007 and the seven months ended 31 October 2007 (the “Relevant Periods”) and a summary of significant accounting policies and other explanatory notes, for inclusion in the circular of Brilliant Arts Multi-Media Holding Limited dated 31 December 2007 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of the Target.

The Target was incorporated and registered in the British Virgin Islands on 1 February 2002 with limited liability and acts as an investment holding company. As at the date of this report, the Target holds the entire share capital of its subsidiary namely Vincent Investment Limited (“Vincent Investment”). The details of its subsidiary are set out in Note 12 of Section I in this report.

No audited financial statements have been prepared for the Target and its subsidiary for the Relevant Periods or since the date of their incorporation as there is no statutory requirement to do so.

For the purpose of the report, the sole director of the Target has prepared the consolidated financial statements of the Target Group for the Relevant Periods in accordance with the Hong Kong Financial Reporting Standards (“HKFRSs”). We have carried out independent audit procedures on the consolidated financial statements for the Relevant Periods (the “Underlying Financial Statements”), in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

– 59 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

We have examined the Underlying Financial Statements. Our examination was made in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA.

The Financial Information of the Target Group for the Relevant Periods set out in this report has been prepared based on the Underlying Financial Statements for the purpose of preparing our report for inclusion in the Circular. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The preparation of the Underlying Financial Statements are the responsibility of the sole director of the Target. The directors of Brilliant Arts Multi-Media Holding Limited are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Target Group and the Target as at 31 March 2005, 2006 and 2007 and 31 October 2007 and of the consolidated results and cash flows of the Target Group for the Relevant Periods.

Without qualifying our opinion, we draw attention to Note 1(b) to the Financial Information which discloses that as at 31 October 2007, the Target Group had net current liabilities of approximately HK$6,068,000. These conditions, along with other matters as disclosed in Note 1(b) to the Financial Information, indicate the existence of a material uncertainty which may cause significant doubt about the Target Group’s ability to continue as a going concern.

The comparative consolidated income statement, consolidated cash flow statement and consolidated statement of changes in equity of the Target Group for the seven months ended 31 October 2006 together with the notes thereon have been extracted from the Target Group’s unaudited consolidated financial statements for the same period (the “31 October 2006 Financial Information”) which was prepared by the sole director of the Target solely for the purpose of this report. We have reviewed the 31 October 2006 Financial Information in accordance with the Statement of Auditing Standard 700 “Engagements to review interim financial reports” issued by the HKICPA. Our review consisted principally of making enquires of group management and applying analytical procedures to the 31 October 2006 Financial Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as test of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the 31 October 2006 Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 31 October 2006 Financial Information.

– 60 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

FINANCIAL INFORMATION

Consolidated income statements

Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,287 1,500 1,459 801 971 37 19 18 33 240 1,064 1,330 1,592 – 1,632 (186) (294) (283) (100) (226) (472) (612) (547) (280) (349) 1,730 1,943 2,239 454 2,268 (181) (173) (160) (98) (94) 1,549 1,770 2,079 356 2,174 (340) (236) (331) (136) (322) 1,209 1,534 1,748 220 1,852	Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,287 1,500 1,459 801 971 37 19 18 33 240 1,064 1,330 1,592 – 1,632 (186) (294) (283) (100) (226) (472) (612) (547) (280) (349) 1,730 1,943 2,239 454 2,268 (181) (173) (160) (98) (94) 1,549 1,770 2,079 356 2,174 (340) (236) (331) (136) (322) 1,209 1,534 1,748 220 1,852	Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,287 1,500 1,459 801 971 37 19 18 33 240 1,064 1,330 1,592 – 1,632 (186) (294) (283) (100) (226) (472) (612) (547) (280) (349) 1,730 1,943 2,239 454 2,268 (181) (173) (160) (98) (94) 1,549 1,770 2,079 356 2,174 (340) (236) (331) (136) (322) 1,209 1,534 1,748 220 1,852	Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,287 1,500 1,459 801 971 37 19 18 33 240 1,064 1,330 1,592 – 1,632 (186) (294) (283) (100) (226) (472) (612) (547) (280) (349) 1,730 1,943 2,239 454 2,268 (181) (173) (160) (98) (94) 1,549 1,770 2,079 356 2,174 (340) (236) (331) (136) (322) 1,209 1,534 1,748 220 1,852	Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,287 1,500 1,459 801 971 37 19 18 33 240 1,064 1,330 1,592 – 1,632 (186) (294) (283) (100) (226) (472) (612) (547) (280) (349) 1,730 1,943 2,239 454 2,268 (181) (173) (160) (98) (94) 1,549 1,770 2,079 356 2,174 (340) (236) (331) (136) (322) 1,209 1,534 1,748 220 1,852
1,730 (181) 1,549 (340)	1,943 (173) 1,770 (236)	2,239 (160) 2,079 (331)	454 (98) 356 (136)	2,268 (94
				2,174 (322
1,209	1,534	1,748	220

– 61 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Consolidated balance sheets

As at 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 13,316 15,061 16,942	As at 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 13,316 15,061 16,942	As at 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 13,316 15,061 16,942	As at 31 October 2007 HK$’000 22,036 43 211 188 442 458 418 5,634 6,510 (6,068) 15,968 – 10,938 10,938 2,583 2,447 5,030 15,968
– 57 181 238 303 285 4,752 5,340 (5,102)	– 120 136 256 346 311 4,745 5,402 (5,146)	24 104 210 338 431 336 4,678 5,445 (5,107)	43 211 188
			442
			458 418 5,634
			6,510
			(6,068
8,214	9,915	11,835
– 4,221 4,221 2,857 1,136 3,993	– 5,873 5,873 2,635 1,407 4,042	– 7,720 7,720 2,350 1,765 4,115	– 10,938
			10,938
			2,583 2,447
			5,030
8,214	9,915	11,835

– 62 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX III

Balance sheets

As at 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 2 2 2 5,253 5,521 5,769 4,752 4,745 4,678 501 776 1,091 503 778 1,093	As at 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 2 2 2 5,253 5,521 5,769 4,752 4,745 4,678 501 776 1,091 503 778 1,093	As at 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 2 2 2 5,253 5,521 5,769 4,752 4,745 4,678 501 776 1,091 503 778 1,093	As at 31 October 2007 HK$’000 2
			7,151
			5,634
			1,517
			1,519

– 503	– 778	– 1,093	– 1,519
503	778	1,093	1,519

– 63 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Consolidated statements of changes in equity

Attributable to equity holders of the Target	Attributable to equity holders of the Target	Attributable to equity holders of the Target
Share capital HK$’000 – – –	Retained profits HK$’000 2,546 – 1,209	Exchange reserve HK$’000 250 216 –	Total HK$’000 2,796 216 1,209
–	3,755	466	4,221

– – –	3,755 – 1,534	466 118 –	4,221 118 1,534
–	5,289	584	5,873

– – –	5,289 – 1,748	584 99 –	5,873 99 1,748
–	7,037	683	7,720

– – –	7,037 – 1,852	683 1,366 –	7,720 1,366 1,852
–	8,889	2,049	10,938

– – –	5,289 – 220	584 220 –	5,873 220 220
–	5,509	804	6,313

– 64 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

Consolidated cash flow statements

Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,549 1,770 2,079 356 2,174 (1,064) (1,330) (1,592) – (1,632) 181 173 160 98 94 666 613 647 454 636 16 (61) 18 92 (86) – – (24) (32) (14) (156) (155) (158) – – 6 34 78 (116) (61) 532 431 561 398 475 (181) (173) (160) (98) (94) 351 258 401 300 381 (269) (294) (317) (186) (234) (269) (294) (317) (186) (234)	Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,549 1,770 2,079 356 2,174 (1,064) (1,330) (1,592) – (1,632) 181 173 160 98 94 666 613 647 454 636 16 (61) 18 92 (86) – – (24) (32) (14) (156) (155) (158) – – 6 34 78 (116) (61) 532 431 561 398 475 (181) (173) (160) (98) (94) 351 258 401 300 381 (269) (294) (317) (186) (234) (269) (294) (317) (186) (234)	Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,549 1,770 2,079 356 2,174 (1,064) (1,330) (1,592) – (1,632) 181 173 160 98 94 666 613 647 454 636 16 (61) 18 92 (86) – – (24) (32) (14) (156) (155) (158) – – 6 34 78 (116) (61) 532 431 561 398 475 (181) (173) (160) (98) (94) 351 258 401 300 381 (269) (294) (317) (186) (234) (269) (294) (317) (186) (234)	Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,549 1,770 2,079 356 2,174 (1,064) (1,330) (1,592) – (1,632) 181 173 160 98 94 666 613 647 454 636 16 (61) 18 92 (86) – – (24) (32) (14) (156) (155) (158) – – 6 34 78 (116) (61) 532 431 561 398 475 (181) (173) (160) (98) (94) 351 258 401 300 381 (269) (294) (317) (186) (234) (269) (294) (317) (186) (234)	Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 1,549 1,770 2,079 356 2,174 (1,064) (1,330) (1,592) – (1,632) 181 173 160 98 94 666 613 647 454 636 16 (61) 18 92 (86) – – (24) (32) (14) (156) (155) (158) – – 6 34 78 (116) (61) 532 431 561 398 475 (181) (173) (160) (98) (94) 351 258 401 300 381 (269) (294) (317) (186) (234) (269) (294) (317) (186) (234)
666 16 – (156) 6 532 (181) 351 (269) (269)	613 (61) – (155) 34 431 (173) 258 (294) (294)	647 18 (24) (158) 78 561 (160) 401 (317) (317)	454 92 (32) – (116) 398 (98) 300 (186) (186)	636 (86 (14 – (61
				475 (94
				381
				(234
				(234

– 65 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR/PERIOD Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR/ PERIOD ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash at bank	Year ended 31 March Seven months ended 31 October 2005 2006 2007 2006 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 82 (36) 84 114 147 108 181 136 136 210 (9) (9) (10) (27) (169) 181 136 210 223 188 181 136 210 223 188

– 66 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

I. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION AND BASIS OF PRESENTATION

(a) General information

The Target is a limited liability company incorporated in the British Virgin Islands and acts as an investment holding company. The address of its registered office is P.O. Box 3321, Road Town, Tortola, British Virgin Islands and its principal place of business is 6180 Garrison Court, Richmond, B.C. V7C 5S2, Canada.

The sole director of the Target considers the ultimate holding company of the Target Group to be Eagle Mate Limited, a company incorporated in the British Virgin Islands, as at 31 October 2007.

(b) Basis of preparation

In preparing the consolidated financial statements, the sole director of the Target has given consideration to the future liquidity of the Target Group in light of its net current liabilities of approximately HK$6,068,000 as at 31 October 2007. In the opinion of the sole director of the Target, the ultimate holding company of the Target Group has indicated its intention to provide further financial support to the Target Group, the Target Group will be able to meet its liabilities in full as they fall due in the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.

2. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The HKICPA issued a number of new standards, amendments and interpretations (“new HKFRSs) that are effective for accounting periods either beginning on or after 1 December 2005, 1 January 2006 or 1 January 2007. For the purposes of preparing and presenting Financial Information of the Relevant Periods, the Target Group has adopted all these new HKFRSs during the Relevant Periods.

The Target Group has not early applied the following new HKFRSs that have been issued but are not yet effective. The Target Group anticipates that the application of new HKFRSs will have no material impact on the financial information of the Target Group.

HK(IFRIC) – Int 12	Service Concession Arrangements (effective	for	annual	periods
	beginning on or after 1 January 2008)
HK(IFRIC) – Int 13	Customer Loyalty Programmes (effective	for	annual	periods
	beginning on or after 1 July 2008)
HK(IFRIC) – Int 14	HKAS19 – The Limited on a Defined Benefit		Asset, Minimum
	Funding Requirements and their Interaction	(effective for		annual
	periods beginning on or after 1 January 2008)
HKFRS 8	Operating Segments (effective for annual periods		beginning on or
	after 1 January 2009)
HKAS 23 (Revised)	Borrowing costs (effective for annual periods	beginning on		or after
	1 January 2009)

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with new HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance. The consolidated financial statements are prepared under the historical cost basis, except for investment property and certain financial instruments, which are measured at fair value. A summary of the significant accounting policies adopted by the Target Group is set out below.

– 67 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Target and its subsidiary.

The results of subsidiary acquired or disposed of during the Relevant Periods are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant inter-company transactions, balances and unrealised gains on transactions within the Target Group are eliminated on consolidation.

b) Impairment

At each balance sheet date, the Target Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately.

c) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Deferred tax liabilities are recognised for taxable temporary differences arising on investment in subsidiary, except where the Target Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

– 68 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

d) Investment property

On initial recognition, investment property is measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment property is measured using the fair value model. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use or no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year in which the item is derecognised.

e) Subsidiary

A subsidiary is a company controlled by the Target. A subsidiary is considered to be controlled if the Target has the power, directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from its activities.

Investment in subsidiary is included in the Target’s balance sheet at cost less impairment loss, if any. The results of subsidiary are accounted for by the Target to the extent of dividends received and receivable during the Relevant Periods.

f) Leased assets

i) Finance leases

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Target Group. Assets held under finance leases are capitalised at their fair values at the date of acquisition. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation.

ii) Operating leases

All other leases are classified as operating leases and the annual rentals are charged to income statement on a straight-line basis over the relevant lease terms.

g) Related party

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or entities and include entities which are controlled or under the significant influence of related parties of the Target Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Target Group or of any entity that is a related party of the Target Group.

– 69 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX III

h) Provision and contingencies

i) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Target Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

j) Financial instruments

Financial assets

The Target Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available-for-sale and held to maturity. The classification depends on the purpose for which the financial assets were acquired. The Target’s management determine the classification of its financial assets at initial recognition. During the Relevant Periods, the Target Group only held loans and receivables.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and other receivables and amount due from subsidiary) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the assets’ recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

– 70 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX III

Financial liabilities and equity

An equity instrument is any contract that evidences a residual interest in the assets of the Target Group after deducting all of its liabilities. The Target Group’s financial liabilities are mainly other financial liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

Financial liabilities

Financial liabilities including bank borrowings, other payables and amount due to ultimate holding company are subsequently measured at amortised cost, using the effective interest method.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Target Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration received or receivable is recognised in profit or loss.

k) Borrowing costs

All other borrowing costs are charged to the income statement in the year in which they are incurred.

l) Foreign currencies

The consolidated financial statements are presented in Hong Kong Dollars, which is the Target’s functional and presentation currency. In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise, except for exchange differences arising on a monetary item that forms part of the Target’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financial statements. Exchange differences arising on the retranslation of non-monetary

– 71 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

For the purposes of presenting the consolidated financial statements, the assets and liabilities of the Target Group’s foreign operations are translated into the presentation currency of the Target Group (i.e. Hong Kong dollars) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the exchange reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the exchange reserve.

m) Revenue recognition

Rental income from operating leases

Rental income receivables under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivables. Contingent rentals are recognised as income in the accounting period in which they are earned.

n) Employee benefits

Salaries, annual bonuses, paid annual leave, leave passage and the cost to the Target Group of non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Target Group. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

4. FINANCIAL INSTRUMENTS

a) Financial risk management objectives and policies

The Target Group’s major financial instruments include bank deposits and borrowing, trade and other receivables, other payables and accruals, amount due from and to subsidiary and ultimate holding company. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented in a timely and an effective manner.

i) Foreign exchange risk

– 72 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX III

ii) Interest rate risk

The Target Group’s exposure to changes in interest rate relates primarily to the Target Group’s bank deposits and borrowing (Note 13). The Target Group does not use financial derivatives to hedge against the interest rate risk. The Target Group monitors the interest rate risk exposure on a continuous basis and adjust the portfolio of borrowings where necessary.

iii) Credit risk

The Target Group has no significant credit risk.

iv) Liquidity risk

The sole director of the Target has built an appropriate liquidity risk management framework for the management of the Target Group’s short, medium and long-term fundings and liquidity management requirements. The Target Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management to finance the Target Group’s operation and mitigate the effects of fluctuations in cash flows.

The table below analyses the Target Group’s financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

			After 2
		After 1 year	years but
	Within 1	but within 2	within 5
	year	years	years	Total
	HK$’000	HK$’000	HK$’000	HK$’000
As at 31 March 2005
Other payables and
accruals	303	–	–	303
Bank borrowing	285	301	2,556	3,142
Amount due to ultimate
holding company	4,752	–	–	4,752
As at 31 March 2006
Other payables and
accruals	346	–	–	346
Bank borrowing	311	340	2,295	2,946
Amount due to ultimate
holding company	4,745	–	–	4,745
As at 31 March 2007
Other payables and
accruals	431	–	–	431
Bank borrowing	336	355	1,995	2,686
Amount due to ultimate
holding company	4,678	–	–	4,678
As at 31 October 2007
Other payables and
accruals	458	–	–	458
Bank borrowing	418	442	2,141	3,001
Amount due to ultimate
holding company	5,634	–	–	5,634

– 73 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

v) Fair value of financial instruments

The sole director of the Target considers that the carrying amounts of financial assets and financial liabilities recorded in the consolidated financial statements during the Relevant Periods approximate their fair values at the respective balance sheet dates due to their short maturities.

vi) Capital risk management

The Target Group manages its capital to ensure that the entities in the Target Group will be able to continue as a going concern while maximising the return to equity holders through the optimisation of the debt and equity balances.

The capital structure of the Target Group consists of bank borrowing (Note 13) and equity attributable to equity holders of the Target, comprising issued capital, exchange reserve and retained profits (Note 17).

The sole director of the Target reviews the capital structure regularly. The sole director of the Target considers the cost of capital and the associated risks, the Target Group will balance its overall capital structure through the issue of new shares and the raise of bank borrowings.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The Target Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Investment property

Investment property is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The recoverable amount of investment property has been determined based on value-in-use calculations, taking into account the latest market information and past experience. The calculation and valuations require the use of judgement and estimates.

6. TURNOVER

				Seven months	ended
	Year	ended 31 March		31 October
	2005	2006	2007	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Turnover
Rental income	1,287	1,500	1,459	801	971

– 74 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

7. FINANCE COSTS

				Seven months	ended
	Year	ended 31 March		31 October
	2005	2006	2007	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Interest on bank
borrowing repayable
within five years	181	173	160	98	94

8. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging/(crediting):

				Seven months	ended
	Year	ended 31 March		31 October
	2005	2006	2007	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Rental income less direct
outgoings	(815)	(888)	(912)	(521)	(622)
Exchange gain	(37)	(19)	(18)	(33)	(240)
Staff costs	137	177	151	100	151

9. DIRECTORS’ REMUNERATION

No directors’ remunerations have been paid or payable to the Target’s director during the Relevant Periods.

10. INCOME TAX

Year ended 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 – – –	Year ended 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 – – –	Year ended 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 – – –	Seven months ended 31 October 2006 2007 HK$’000 HK$’000 (unaudited) – –	Seven months ended 31 October 2006 2007 HK$’000 HK$’000 (unaudited) – –
340 – 340	285 (49) 236	331 – 331	136 – 136	322 –
				322
340	236	331	136	322

– 75 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

The Target was incorporated in the British Virgin Islands (the “BVI”) and is exempted from income tax in the BVI. Vincent Investment was incorporated and had operated in Canada during the Relevant Periods. No provision for corporate income tax of Vincent Investment in Canada has been made in the consolidated financial statements as it had no taxable profits for the Relevant Periods.

The income tax expenses for the year/period can be reconciled to the profit before taxation per the consolidated income statements as follows:

Profit before taxation Notional tax on profit before taxation, calculated at the rates applicable to profits in the countries concerned Tax effect of non-taxable incomes Effect of decrease in tax rate on deferred tax balances at beginning of the year/period Tax effect of non-deductible expenses Income tax expenses	Year ended 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 1,549 1,770 2,079	Year ended 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 1,549 1,770 2,079	Year ended 31 March 2005 2006 2007 HK$’000 HK$’000 HK$’000 1,549 1,770 2,079	Seven months ended 31 October 2006 2007 HK$’000 HK$’000 (unaudited) 356 2,174 112 599 – (277) – – 24 – 136 322	Seven months ended 31 October 2006 2007 HK$’000 HK$’000 (unaudited) 356 2,174 112 599 – (277) – – 24 – 136 322
	531 (191) – –	511 (226) (49) –	602 (271) – –	112 – – 24	599 (277 – –
	340	236	331	136

– 76 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

11. INVESTMENT PROPERTIES

At 1 April 2004 Exchange adjustments Fair value gain At 31 March 2005 At 1 April 2005 Exchange adjustments Fair value gain At 31 March 2006 At 1 April 2006 Exchange adjustments Fair value gain At 31 March 2007 At 1 April 2007 Exchange adjustments Fair value gain At 31 October 2007	HK$’000 11,303 949 1,064
	13,316

	13,316 415 1,330
	15,061

	15,061 289 1,592
	16,942

	16,942 3,462 1,632
	22,036

a) The investment property is situated in Canada.
b) The investment property as at 31 March 2004, 2005, 2006, 2007 and 31 October 2007 was revalued on an open market basis by Grant Sherman Appraisal Limited, independent qualified professional valuers not connected with the Target Group and have appropriate qualifications and recent experience in the valuation of similar properties in the relevant locations. The valuation was arrived at by reference to comparable sales evidences as available in the relevant market.
c) The Target Group’s property interests held under operating leases to earn rentals are measured using the fair value model and are classified and accounted for as investment property.
d) The Target Group’s property had been pledged to secure bank borrowing granted to the Target Group during the Relevant Periods (Note 19).

12. INTEREST IN A SUBSIDIARY

Unlisted shares, at cost Amount due from a subsidiary (Note a)	As at 31 March 2005 2006 HK$’000 HK$’000 2 2 5,253 5,521 5,255 5,523	2007 HK$’000 2 5,769 5,771	As at 31 October 2007 HK$’000 2 7,151
			7,153

– 77 –

APPENDIX III

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

a) The amount is unsecured, interest free and repayable on demand.

b) The details of the subsidiary at each of the balance sheet dates are as follows:

	Place of		Direct
	incorporation/	Issued and fully	interest	Principal
Name of subsidiary	operation	paid share capital	held	activity
Vincent Investment Limited	Canada	360 common	100%	Property
		shares of CAD1		investment
		each

13. BANK BORROWING

As at 31 March 2005 2006 HK$’000 HK$’000 285 311	As at 31 March 2005 2006 HK$’000 HK$’000 285 311	2007 HK$’000 336	As at 31 October 2007 HK$’000 418
301 2,556 2,857	340 2,295 2,635	355 1,995 2,350	442 2,141
			2,583
3,142	2,946	2,686	3,001

During the Relevant Periods, the bank borrowing was arranged at the average effective interest rate of 5.8% per annum and was secured by the investment property of the Target Group (Note 19).

14. AMOUNT DUE TO ULTIMATE HOLDING COMPANY

The amount is unsecured, interest-free and repayable on demand.

– 78 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

15. DEFERRED TAX LIABILITIES

The movements in deferred tax assets/(liabilities) recognised during the Relevant Periods are as follows:

Revaluation of investment property HK$’000 (373) (31) (190) (594)	Accelerated tax depreciation HK$’000 (439) (37) (67) (543)	Tax losses HK$’000 78 6 (83) 1	Total HK$’000 (734) (62) (340) (1,136) (1,136) (35) (236) (1,407) (1,407) (26) (332) (1,765) (1,765) (360) (322) (2,447)
(594) (18) (201)	(543) (17) (34)	1 – (1)	(1,136 (35 (236
(813)	(594)	–
(813) (15) (273)	(594) (11) (59)	– – –	(1,407 (26 (332
(1,101)	(664)	–
(1,101) (225) (278)	(664) (135) (47)	– – 3	(1,765 (360 (322
(1,604)	(846)	3

– 79 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX III

16. SHARE CAPITAL

Authorised: 50,000 ordinary shares of USD1 each equivalent to Issued and fully paid: 1 ordinary share of USD1 each equivalent to	As at 31 March 2005 2006 USD50,000 USD50,000 HK$390,000 HK$390,000 USD1 USD1 HK$8 HK$8	2007 USD50,000 HK$390,000 USD1 HK$8	As at 31 October 2007 USD50,000

			HK$390,000

			USD1

			HK$8

– 80 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX III

17. RESERVES

The Target Group

Retained profits HK$’000 2,546 – 1,209 3,755	Exchange reserve HK$’000 250 216 – 466	Total HK$’000 2,796 216 1,209
		4,221

3,755 – 1,534	466 118 –	4,221 118 1,534
5,289	584	5,873

5,289 – 1,748	584 99 –	5,873 99 1,748
7,037	683	7,720

7,037 – 1,852	683 1,366 –	7,720 1,366 1,852
8,889	2,049	10,938

5,289 – 220	584 220 –	5,873 220 220
5,509	804	6,313

– 81 –

ACCOUNTANTS’ REPORT ON THE TARGET GROUP

APPENDIX III

The Target

At 1 April 2004 Profit for the year At 31 March 2005 At 1 April 2005 Profit for the year At 31 March 2006 At 1 April 2006 Profit for the year At 31 March 2007 At 1 April 2007 Profit for the period At 31 October 2007 Unaudited At 1 April 2006 Profit for the period At 31 October 2006	Retained profits HK$’000 428 75
	503

	503 275
	778

	778 315
	1,093

	1,093 426
	1,519

	778 33
	811

18. OPERATING LEASE COMMITMENTS

At the balance sheet date, the Target Group had contracted with tenants for the following future minimum lease payments:

Within one year After one year but within five years After five years	As at 31 March 2005 2006 HK$’000 HK$’000 1,289 1,140 4,761 3,770 1,024 178 7,074 5,088	2007 HK$’000 1,196 3,208 – 4,404	As at 31 October 2007 HK$’000 1,637 3,596 –
			5,233

– 82 –

APPENDIX III ACCOUNTANTS’ REPORT ON THE TARGET GROUP

19. PLEDGE OF ASSET

The Target Group had pledged the following asset to secure bank borrowing granted to the Target Group during the Relevant Periods:

							As at 31
			As	at	31 March		October
		2005			2006	2007	2007
		HK$’000			HK$’000	HK$’000	HK$’000
Investment	property	13,316			15,061	16,942	22,036

20. RELATED PARTY TRANSACTIONS

Compensation of key management personnel

The remuneration of directors and other members of key management during the Relevant Periods were as follows:

				Seven months	ended
	Year	ended 31 March		31 October
	2005	2006	2007	2006	2007
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
				(unaudited)
Salaries and other
short-term benefits	137	177	151	100	151

II. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Target Group have been prepared in respect of any period subsequent to 31 October 2007.

Yours faithfully, CCIF CPA Limited

Certified public Accountants Hong Kong, 31 December 2007

Yau Hok Hung

Practising Certificate Number P04911

– 83 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

The following accountants’ report and unaudited pro forma financial information are extracted from the circular of the Company dated 15 October 2007. Capitalized terms used in this Appendix IV shall have the meanings as defined therein and/or in the circular of the Company dated 15 October 2007.

I. ACCOUNTANTS’ REPORT ON THE CLASSIC GRACE GROUP

The following is the text of a report, prepared for inclusion in the circular of the Company dated 15 October 2007, received from the reporting accountants of the Company, CCIF CPA Limited, Certified Public Accountants, Hong Kong.

==> picture [92 x 62] intentionally omitted <==

The Directors Brilliant Arts Multi-Media Holding Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to Classic Grace Enterprises Limited (the “Target”) and its subsidiary (hereinafter collectively referred to as the “Target Group”) for the period from 8 May 2007 (date of incorporation of the Target) to 31 August 2007 (the “Relevant Period”) for inclusion in the circular of Brilliant Arts Multi-Media Holding Limited dated 15 October 2007 (the “Circular”) in connection with the proposed acquisition of the entire issued share capital of the Target and its subsidiary.

The Target was incorporated and registered in the British Virgin Islands on 8 May 2007 with limited liability and acts as an investment holding company. As at the date of this report, the Target holds the entire shareholding of its subsidiary namely Grand Billion Investments Limited (“Grand Billion”). The details of its subsidiary are set out in Note 11 of Section I in this report.

No audited financial statements have been prepared for the Target since its date of incorporation as there is no statutory requirement to do so. Up to the date of this report, no audited financial statements of Grand Billion for the period from 18 May 2007 (date of its incorporation) to 31 August 2007 have been prepared.

For the purpose of the report, the sole director of the Target has prepared the consolidated financial statements of the Target Group for the Relevant Period or since its subsidiary’s date of incorporation to 31 August 2007, whichever period is shorter, in accordance with the Hong Kong Financial Reporting Standards (“HKFRSs”). We have carried out independent audit procedures on the consolidated financial statements for the

– 84 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

Relevant Period (the “Underlying Financial Statement”), in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

The Financial Information of the Target Group for the Relevant Period set out in this report has been prepared based on the Underlying Financial Statements.

The preparation of the Underlying Financial Statements are the responsibility of the sole director of the Target. The Company’s directors are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereon give, for the purpose of this report, a true and fair view of the state of affairs of the Target Group and the Target as at 31 August 2007 and of the consolidated results and cash flows of the Target Group for the Relevant Period.

– 85 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

I. FINANCIAL INFORMATION

Consolidated income statement

		Period from
		8 May 2007
		(date of
		incorporation)
		to 31 August
		2007
	Notes	HK$’000
Turnover	6	–
Other revenue	6	604
Other operating expenses		(10)
Profit before taxation	7	594
Income tax	9	(106)
Profit for the period attributable to equity holders of the Target		488

– 86 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

Consolidated balance sheet

Notes Non-current asset Investment property 10 Current liability Amount due to ultimate holding company 12 Net assets Capital and reserves Share capital 13 Reserves Total equity Non-current liabilities Deferred tax liabilities 14	At 31 August 2007 HK$’000 24,100 (23,506) 594 – 488 488 106 594

– 87 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

Balance sheet

Notes Non-current asset Interest in a subsidiary 11 Current liability Amount due to ultimate holding company 12 Net liabilities Capital and reserves Share capital 13 Reserves Total equity	At 31 August 2007 HK$’000 – (5) (5) – (5) (5)

Total equity

– 88 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

Consolidated statement of changes in equity

At 8 May 2007, date of incorporation Profit for the period At 31 August 2007	Attributable to equity holders of the Target Share capital Retained profits HK$’000 HK$’000 – – – 488 – 488	Total HK$’000 – 488
		488

– 89 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

Consolidated cash flow statement

OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Fair value gain on investment property
Operating cash flows before movements in working capital
Increase in amount due to ultimate holding company
NET CASH GENERATED FROM OPERATING ACTIVITIES
INVESTING ACTIVITIES
Purchase of investment property
NET CASH USED IN INVESTING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT THE END OF THE
RELEVANT PERIOD

Period from
8 May 2007
to 31 August
2007
HK$’000
594
(604)
(10)
23,506
23,496
(23,496)
(23,496)
–
–

– 90 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

Notes to the Financial Information

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The Target is a limited liability company incorporated in the British Virgin Islands and acts as an investment holding company. The addresses of its registered office and principal place of business are P. O. Box 3444, Road Town, Tortola, British Virgin Islands.

The sole director considers the ultimate holding company of the Target Group to be Billion ERA Group Limited, a company incorporated in the British Virgin Islands, as at 31 August 2007.

The consolidated financial statements are presented in Hong Kong dollars, which is the same as the functional currency of the Target.

2. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The HKICPA issued a number of new standards, amendments and interpretations (“new HKFRSs) that are effective for accounting periods either beginning on or after 1 December 2005, 1 January 2006 or 1 January 2007. For the purposes of preparing and presenting financial information of the Relevant Period, the Target Group has adopted all the new HKFRSs.

HK(IFRIC) – Int 12 Service Concession Arrangements (effective for annual periods beginning on or after 1 January 2008) HKFRS 8 Operating segments (effective for annual periods beginning on or after 1 January 2009) HKAS 23 (Revised) Borrowing costs (effective for annual periods beginning on or after 1 January 2009)

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared in accordance with new HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance. The consolidated financial statements are prepared under the historical cost convention, except for investment property and certain financial instruments, which are measured at fair value. A summary of the significant accounting policies adopted by the Target Group is set out below.

a) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Target and its subsidiary.

The results of subsidiary acquired or disposed of during the Relevant Period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant inter-company transactions, balances and unrealised gains on transactions within the Target Group are eliminated on consolidation.

b) Impairment

– 91 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

c) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items of income or expense that are never taxable and deductible.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

d) Investment property

– 92 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

e) Subsidiary

A subsidiary is a company controlled by the Target. A subsidiary is considered to be controlled if the Target has the power directly or indirectly, to govern the financial and operating policies, so as to obtain benefits from its activities.

f) Leased assets

i) Finance leases

Payments to the lessor are treated as consisting of capital and interest elements. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the consolidated income statement over the term of the relevant lease so as to produce an approximately periodic rate of charge on the remaining balance of the obligations for each accounting period.

ii) Operating leases

All other leases are classified as operating leases and the annual rentals are charged to the consolidated income statement on a straight-line basis over the relevant lease terms.

g) Related party

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or entities and include entities which are controlled or under the significant influence of related parties of the Target Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Target Group or of any entity that is a related party of the Target Group.

h) Provision and contingencies

Contingent liabilities are not recognised in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of economic benefits is probable.

– 93 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

i) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Target Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

j) Financial instruments

Financial assets and financial liabilities are recognised on the consolidated balance sheet when a group entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and bills receivables, prepayments, deposits and other receivables) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the assets’ carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the assets’ recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity

An equity instrument is any contract that evidences a residual interest in the assets of the Target Group after deducting all of its liabilities. The Target Group’s financial liabilities are generally classified into financial liabilities at fair value through profit or loss and other financial liabilities.

Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract issued by the Target Group and not designed as at fair value through profit or loss is recognised initially at its fair value less transaction costs that are directly attributable to the issue of the financial guarantee contract. Subsequent to initial recognition, the Target Group measure the financial guarantee contact at the higher of: (i) the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue.

– 94 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

Derecognition

For financial liabilities, they are removed from the Target Group’s consolidated balance sheet (i.e. when the obligation specified in the relevant contract is discharged, cancelled or expired). The difference between the carrying amount of the financial liability derecognised and the consideration received or receivable is recognised in profit or loss.

4. FINANCIAL INSTRUMENTS

a) Financial risk management objectives and policies

The Target Group’s financial instrument include amount due to ultimate holding company. Details of this financial instrument are disclosed in note 12. The risks associated with this financial instrument and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented in a timely and an effective manner.

i) Liquidity risk

The Target Group manages its liquidity risk by regularly monitoring current and expected liquidity requirements and ensuring sufficient liquid cash and adequate funding from ultimate holding company to meet the Target Group’s liquidity requirements in the short and long term.

ii) Foreign exchange risk

The Target Group operates in Hong Kong with most of the transactions settled in Hong Kong dollars. The Target Group did not have significant exposure to foreign exchange risk.

iii) Credit and interest rate risks

The Target Group has no significant credit and interest rate risks.

b) Fair value

The fair value of financial assets and financial liabilities are determined as follows:

the fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices; and
the fair value of other financial assets and financial liabilities (excluding derivative instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.

Except as indicated in the consolidated financial statement, the directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate to their fair values.

– 95 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Investment property

6. TURNOVER AND OTHER REVENUE

Turnover Other revenue Fair value gain on investment property Total revenue	Period from 8 May 2007 (date of incorporation) to 31 August 2007 HK$’000 – 604
	604

7. PROFIT BEFORE TAXATION

Auditors’ remuneration Incorporation fee	Period from 8 May 2007 (date of incorporation) to 31 August 2007 HK$’000 – 7

8. DIRECTORS’ REMUNERATION

No directors’ remuneration have been paid or payable by the Target Group during the Relevant Period.

– 96 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

9. INCOME TAX

Hong Kong profits tax Deferred tax (Note 14)	Period from 8 May 2007 (date of incorporation) to 31 August 2007 HK$’000 – 106
	106

No provision for Hong Kong profits tax has been made in the consolidated financial statements as the Target Group had no assessable profits for the Relevant Period.

The income tax for the year can be reconciled to the profit before taxation per the consolidated income statement as follows:

Profit before taxation Tax at the Hong Kong profits tax rate of 17.5% Tax effect of non-deductible expenses Income tax for the Relevant Period INVESTMENT PROPERTY Addition during the Relevant Period Fair value gain credited to the consolidated income statement At 31 August 2007	Period from 8 May 2007 (date of incorporation) to 31 August 2007 HK$’000 594

	104 2
	106

	HK$’000 23,496 604
	24,100

10. INVESTMENT PROPERTY

a) The investment property is situated in Hong Kong and held under medium term lease.
b) The investment property was revalued as at 31 August 2007 on an open market basis by Grant Sherman Appraisal Limited, independent qualified professional valuers not connected with the Target Group and have appropriate qualifications and recent experience in the valuation of similar properties in the relevant locations. The valuation was arrived at by reference to market evidence of transaction prices for similar properties.
c) The Target Group’s property interests held under operating leases to earn rentals are measured using the fair value model and are classified and accounted for as investment property.

– 97 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

11. INTEREST IN A SUBSIDIARY

At 31 August 2007 HK$’000

Unlisted shares, at cost –

The details of the subsidiary as at 31 August 2007 are as follows:

	Place of	Issued and	Direct
	incorporation/	fully paid	interest
Name of subsidiary	operation	share capital	held	Principal activity
Grand Billion Investments	Hong Kong	1 ordinary share	100%	Property
Limited		of HK$1		investment

12. AMOUNT DUE TO ULTIMATE HOLDING COMPANY

The amount is unsecured, interest free and repayable on demand.

13. SHARE CAPITAL

Authorised: 50,000 ordinary shares of US$1 each Equivalent to Issued and fully paid: 1 ordinary share of US$1 each Equivalent to	At 31 August 2007 US$50,000

	HK$390,000

	US$1

	HK$8

14. DEFERRED TAX LIABILITIES

The movements in deferred tax liabilities recognised during the Relevant Period are as follows:

	At 31 August
	2007
	HK$’000
Revaluation of investment property
Charged to the consolidated income statement (Note 9)	106

– 98 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

15. OPERATING LEASE COMMITMENTS

The Target Group entered into a tenancy agreement with Brilliant Arts Multi-Media Holding Limited for one year commencing from 22 August 2007 with a rent-free period from 22 August 2007 to 31 October 2007.

At the balance sheet date, the Target Group had contracted with Brilliant Arts Multi-Media Holding Limited for the following future minimum lease payments:

			31 August
			2007
			HK$’000
Within	one	year	968

II. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Target Group have been prepared in respect of any period subsequent to 31 August 2007.

Yours faithfully, CCIF CPA Limited

Certified public Accountants Hong Kong, 15 October 2007

Yau Hok Hung Practising Certificate Number P04911

– 99 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

II. PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The unaudited pro forma statement of assets and liabilities of the Enlarged Group is prepared based on the audited consolidated balance sheet extracted from the annual report of the Group as at 31 March 2007 after making pro forma adjustments that are necessary. The pro forma adjustments have not taken into account of the Company’s transactions made subsequent to 31 March 2007, which included (i) the issue of the Company’s convertible bonds in a principal amount of HK$25 million; (ii) the disposal of the Group’s subsidiaries, Milkyway Image (Hong Kong) Limited and Luminous Star Limited, for a total consideration of HK$26 million; and (iii) the open offer of 124,663,636 offer shares of the Company. The details of the above transactions are set out in the Company’s circulars dated 2 April 2007, 23 May 2007 and 24 September 2007 respectively.

The unaudited pro forma statement of assets and liabilities of the Enlarged Group has been prepared to provide the unaudited pro forma financial information of the Enlarged Group as if the proposed acquisition of the Target Group had been completed on 31 March 2007. As it has been prepared for illustrative purpose only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group as at 31 March 2007 and at any future date.

– 100 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

Unaudited Pro Forma Statement of Assets and Liabilities of the Enlarged Group

ASSETS AND LIABILITIES Non-current assets Fixed assets (including property, plant and equipment, investment property and prepaid lease payment) Goodwill Current assets Films rights, current portion Film in progress Production in progress Trade debtors Deposits, prepayments and other debtors Bank and cash balances Current liabilities Trade creditors Other creditors and accruals Receipt in advance Amounts due to directors Amounts due to related companies Amount due to ultimate holding company Provisions Obligations under finance leases – due within one year Net current liabilities Total assets less current liabilities	The Group as at 31 March 2007 Target Group as at 31 August 2007 Pro forma adjustments HK$’000 HK$’000 HK$’000 (Audited) (Note a) (Note b) 9,952 24,100 – 6	Pro Forma Enlarged Group HK$’000 (Unaudited) 34,052 6 34,058 2,397 9,110 25,522 13,812 6,116 23,877 80,834 2,762 1,117 46,347 2,484 37,755 – 4,000 380 94,845 (14,011) 20,047
	9,952 2,397 9,110 25,522 13,812 6,116 23,877 80,834 2,762 1,117 46,347 2,484 37,755 – 23,506 (23,506) 4,000 380 94,845 (14,011)	34,058
		2,397 9,110 25,522 13,812 6,116 23,877
		80,834
		2,762 1,117 46,347 2,484 37,755 – 4,000 380
		94,845
		(14,011
	(4,059)

– 101 –

APPENDIX IV

FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

Capital and reserves Share capital Reserves Total equity Non-current liabilities Convertible bonds Obligations under finance leases – due after one year Deferred tax liabilities	The Group as at 31 March 2007 Target Group as at 31 August 2007 Pro forma adjustments HK$’000 HK$’000 HK$’000 (Audited) (Note a) (Note b) 10,620 (28,764) 488 3,786	Pro Forma Enlarged Group HK$’000 (Unaudited) 10,620 (24,490) (13,870) 33,567 244 106 33,917 20,047
	(18,144) 13,841 19,726 244 – 106 14,085	(13,870
		33,567 244 106
		33,917
	(4,059)

Notes:

a) This represents the inclusion of the assets and liabilities of the Target Group as at 31 August 2007 set out in the Appendix III to this circular.
b) The adjustments reflect the acquisition of the Target Group for a consideration of HK$24,000,000, which shall be satisfied by the issue of the Company’s Convertible Bond with a face value of HK$24,000,000 to the Vendor. The Company’s directors have considered a valuation performed by Grant Sherman Appraisal Limited, independent professional valuers, and are of the opinion that at 31 August 2007, the fair value and the equity reserve of the Convertible Bond in compliance with Hong Kong Accounting Standards 32 and 39 issued by the Hong Kong Institute of Certified Public Accountants were approximately HK$19,726,000 and HK$4,274,000 respectively.

The final fair value of the Convertible Bond, which may be different to that presented above, to be recorded by the Group on completion will be determined with reference to the valuation performed by Grant Sherman Appraisal Limited, independent professional valuers, at the date of completion of the Convertible Bond.

The acquisition of the Target Group was assumed to be completed on 31 March 2007 and with reference to the identifiable net assets of the Target Group as at 31 August 2007, the Group recognised a goodwill of approximately HK$6,000 (the consideration of HK$24,000,000 less the identifiable net assets of the Target Group of approximately HK$488,000 and the amounts due to ultimate holding company of approximately HK$23,506,000) from the acquisition of the Target Group. Since the carrying amounts of the identifiable assets and liabilities of the Target Group at the date of completion may be different from their carrying amounts as at 31 August 2007, the actual goodwill arising from the acquisition may be different from that presented above.

– 102 –

APPENDIX IV FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

2. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

==> picture [92 x 62] intentionally omitted <==

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF BRILLIANT ARTS MULTI-MEDIA HOLDING LIMITED

We report on the unaudited pro forma financial information of Brilliant Arts Multi-Media Holding Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of the entire issued share capital of Classic Grace Enterprises Limited (the “Target”) and its subsidiary (hereinafter collectively referred to as the “Target Group”) (together with the Group referred to as the “Enlarged Group”), might have affected the financial information presented for inclusion in section 1 of Appendix IV to the circular issued by the Company dated 15 October 2007 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out on section 1 of Appendix IV to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with rule 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

It is our responsibility to form an opinion, as required by rule 7.31(7) of the GEM Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 103 –

FINANCIAL INFORMATION ON THE CLASSIC GRACE GROUP

APPENDIX IV

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to rule 7.31(1) of the GEM Listing Rules.

The unaudited pro forma financial information is for illustrative purpose only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Enlarged Group as at 31 March 2007 or any future date.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to the rule 7.31(1) of the GEM Listing Rules.

CCIF CPA Limited

Certified public Accountants Hong Kong, 15 October 2007

Yau Hok Hung

Practising Certificate Number P04911

– 104 –

APPENDIX V PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

The unaudited pro forma statement of assets and liabilities of the Enlarged Group is prepared based on (i) the audited consolidated balance sheet of the Group as at 31 March 2007, which has been extracted from the annual report of the Group as at 31 March 2007 as set out in appendix I to the Circular; and (ii) the audited consolidated balance sheet of the Target Group as at 31 October 2007, which has been extracted from the accountants’ report on the Target Group as set out in appendix III to the Circular, after making pro forma adjustments that are necessary. The pro forma adjustments have not taken into account of the Group’s transactions made subsequent to 31 March 2007, which include (i) the issue of the Company’s convertible bonds in a principal amount of HK$25 million; (ii) the disposal of the Group’s subsidiaries, Milkyway Image (Hong Kong) Limited and Luminous Star Limited, for a total consideration of HK$26 million; (iii) the open offer of 124,663,636 offer shares of the Company; (iv) the acquisition of the Classic Grace Group; and (v) the placing of a maximum of 1,399,860,000 new ordinary shares of the Company of HK$0.1 each. The details of the above transactions are set out in the Company’s circulars dated 2 April 2007, 23 May 2007, 24 September 2007, 15 October 2007 and 7 November 2007 respectively.

– 105 –

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX V

Unaudited Pro Forma Statement of Assets and Liabilities of the Enlarged Group

ASSETS AND LIABILITIES Non-current assets Fixed assets (including property, plant and equipment, investment property and prepaid lease payment) Goodwill Current assets Films rights, current portion Film in progress Production in progress Trade debtors Deposits, prepayments and other debtors Bank and cash balances Current liabilities Trade creditors Other creditors and accruals Receipt in advance Amounts due to directors Amounts due to related companies Amount due to ultimate holding company Provisions Obligations under finance leases – due within one year Bank borrowing – due within one year Net current liabilities Total assets less current liabilities Capital and reserves Share capital Reserves Total equity Non-current liabilities Convertible bonds Obligations under finance leases – due after one year Bank borrowing – due after one year Deferred tax liabilities	The Group as at 31 March 2007 Target Group as at 31 October 2007 Pro forma adjustments HK$’000 HK$’000 HK$’000 (Audited) (Note a) (Note b) 9,952 22,036 – 1,428	Pro Forma Enlarged Group HK$’000 (Unaudited) 31,988 1,428 33,416 2,397 9,110 25,522 13,855 6,327 24,065 81,276 2,762 1,575 46,347 2,484 37,755 – 4,000 380 418 95,721 (14,445) 18,971 28,620 (28,764) (144) 13,841 244 2,583 2,447 19,115 18,971
	9,952 2,397 9,110 25,522 13,812 43 6,116 211 23,877 188 80,834 2,762 1,117 458 46,347 2,484 37,755 – 5,634 (5,634) 4,000 380 – 418 94,845 (14,011)	33,416
		2,397 9,110 25,522 13,855 6,327 24,065
		81,276
		2,762 1,575 46,347 2,484 37,755 – 4,000 380 418
		95,721
		(14,445
	(4,059)
	10,620 18,000 (28,764) 10,938 (10,938) (18,144) 13,841 244 – 2,583 – 2,447 14,085	28,620 (28,764
		(144
		13,841 244 2,583 2,447
		19,115
	(4,059)

– 106 –

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX V

Notes:

a) This represents the inclusion of the assets and liabilities of the Target Group as at 31 October 2007 as set out in the Appendix III to this circular.
b) The adjustments reflect the acquisition of the Target Group for a consideration of HK$18,000,000, which shall be satisfied by the issue of new ordinary shares of the Company of HK$0.1 each. The acquisition of the Target Group was assumed to be completed on 31 March 2007 and with reference to the identifiable net assets of the Target Group as at 31 October 2007, the Group recognised a goodwill of approximately HK$1,428,000 (the consideration of HK$18,000,000 less the identifiable net assets of the Target Group of approximately HK$10,938,000 and the amount due to ultimate holding company of approximately HK$5,634,000) from the acquisition of the Target Group. Since the carrying amounts of the identifiable assets and liabilities of the Target Group at the date of completion may be different from their carrying amounts as at 31 October 2007, the actual goodwill arising from the acquisition may be different from that presented above.

– 107 –

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX V

2. REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

The following is the text of a report, prepared for inclusion in this circular, received from CCIF CPA Limited, Certified Public Accountants, Hong Kong.

==> picture [88 x 62] intentionally omitted <==

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF BRILLIANT ARTS MULTI-MEDIA HOLDING LIMITED

We report on the unaudited pro forma financial information of Brilliant Arts Multi-Media Holding Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of the entire issued share capital of Grandeur Concord Limited (the “Target”) and its subsidiary (hereinafter collectively referred to as the “Target Group”) (together with the Group referred to as the “Enlarged Group”), might have affected the financial information presented for inclusion in section 1 of Appendix V to the circular issued by the Company dated 31 December 2007 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out on section 1 of Appendix V to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

– 108 –

PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX V

Basis of opinion

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to the rule 7.31(1) of the GEM Listing Rules.

CCIF CPA Limited

Certified public Accountants Hong Kong, 31 December 2007

Yau Hok Hung

Practising Certificate Number P04911

– 109 –

GENERAL INFORMATION

APPENDIX VI

RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:

(1) the information contained in this circular is accurate and complete in all material respects and not misleading;
(2) there are no other matters the omission of which would make any statement in this circular misleading; and
(3) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date are as follows:

Authorised 3,000,000,000 Shares	HK$ 300,000,000.00

Issued, fully paid or credited as fully paid 423,853,908 Shares in issue 180,000,000 Consideration Shares to be allotted and issued upon Completion	42,385,390.80 18,000,000.00
603,853,908 Shares	60,385,390.80

All the Shares currently in issue rank pari passu in all respects with each other, including in particular, as to dividends, voting rights and capital. No part of the share capital of the Company is listed or dealt in on any stock exchange other than the Stock Exchange.

Save for the outstanding CSL Convertible Bonds, the Convertible Bond and 67,315,110 outstanding share options, the Company has no derivatives, options, warrants and conversion rights or other similar rights which are convertible or exchangeable into Shares as at the Latest Practicable Date.

On 26 October 2007, the Company announced, amongst other things, in the Announcement the Tranche II Placing. As at the Latest Practicable Date, the Tranche II Placing has not been completed.

– 110 –

GENERAL INFORMATION

APPENDIX VI

DISCLOSURE OF INTERESTS

(a) Directors’ and chief executive’s interests in the Company

Save as disclosed below, as at the Latest Practicable Date, none of the Directors and chief executives of the Company had any interests and short positions in the Shares, underlying Shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (i) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by directors to be notified to the Company and the Stock Exchange:

			Approximate
			percentage of the
		Number of	Company’s
		underlying	issued share
Name	Capacity	shares held	capital (%)
Lei Hong Wai	Beneficial owner	4,238,539	1.00
	(Note 1)
Yip Tai Him	Beneficial owner	4,238,539	1.00
	(Note 2)

Notes:

Mr. Lei Hong Wai, an executive Director, was deemed to be interested in 4,238,539 Shares which would fall to be issued upon exercise of the 4,238,539 share options of the Company.
Mr. Yip Tai Him, an executive Director, was deemed to be interested in 4,238,539 Shares which would fall to be issued upon exercise of the 4,238,539 share options of the Company.

(b) Substantial shareholders of any member of the Enlarged Group

Save as disclosed below, so far as is known to the Directors and the chief executive of the Company, as at the Latest Practicable Date, no person (other than Directors or chief executive of the Company) had, or was deemed to have, interests or short positions in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, is, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Enlarged Group:

– 111 –

GENERAL INFORMATION

APPENDIX VI

Long positions in the Shares and underlying Shares

		Number or	Approximate
		attributable	percentage
		number of	of the
		Shares or	Company’s
		underlying	issued share
Name	Capacity	Shares held	capital
			(%)
China Star	Interest of controlled	112,121,211	26.45
	corporation (Note 1)
China Star Entertainment	Interest of controlled	112,121,211	26.45
(BVI) Limited	corporation (Note 1)
CSL	Beneficial owner	112,121,211	26.45
	(Note 1)
Chu Yuet Wah	Interest of controlled	450,000,000	106.17
	corporation (Note 2)
Ma Siu Fong	Interest of controlled	450,000,000	106.17
	corporation (Note 2)
Kingston Securities	Beneficial owner	450,000,000	106.17
Limited	(Note 2)
Leong Chi Meng	Interest of controlled	100,000,000	23.59
	corporation (Note 3)
Ung Siu Han	Interest of spouse	100,000,000	23.59
	(Note 3)
Billion ERA Group	Beneficial owner	100,000,000	23.59
Limited	(Note 3)
Mr. Cheung	Interest of controlled	180,000,000	42.46
	corporation (Note 4)
Eagle Mate Limited	Beneficial owner (Note 4)	180,000,000	42.46

Notes:

CSL is a company wholly owned by China Star Entertainment (BVI) Limited, which in turn is a wholly owned subsidiary of China Star. CSL was interested in 109,090,908 Shares, and was deemed to be interested in 3,030,303 underlying Shares in relation to the outstanding CSL Convertible Bonds.
Kingston Securities Limited was deemed to be interested in 450,000,000 Shares pursuant to the Tranche II Placing Agreement. Ms. Chu Yuet Wah and Ms. Ma Siu Fong own 51% and 49% interest in Kingston Securities Limited respectively.

– 112 –

GENERAL INFORMATION

APPENDIX VI

Billion ERA Group Limited was deemed to be interested in 100,000,000 Shares in relation to the Convertible Bond. Billion ERA Group Limited is wholly and beneficially owned by Mr. Leong Chi Meng. Ms. Ung Siu Han is the spouse of Mr. Leung Chi Meng, and is thus deemed to be interested in the Shares held by Billion ERA Group Limited.
Eagle Mate Limited was deemed to be interested in the 180,000,000 Consideration Shares pursuant to the Sale and Purchase Agreement. Eagle Mate Limited is wholly and beneficially owned by Mr. Cheung.

QUALIFICATION AND CONSENT OF EXPERTS

The following is the qualification of the experts who have given opinion or advice which is contained in this circular:

Name		Qualification
Grant	Sherman	Independent valuer
CCIF		Certified Public Accountants

Each of Grant Sherman and CCIF has given and has not withdrawn its written consent to the issue of this circular with the expert’s statement included in the form and context in which it is included and the references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, each of Grant Sherman and CCIF does not have any shareholding, direct or indirect, in any member of the Enlarged Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group. As at the Latest Practicable Date, each of Grant Sherman and CCIF did not has any interest, either direct or indirect, in any assets which have been, since 31 March 2007, being the date to which the latest published audited accounts of the Company were made up acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

LITIGATION

As at the Latest Practicable Date, no member of the Enlarged Group is engaged in any litigation or arbitration of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against any member of the Enlarged Group.

AUDIT COMMITTEE

The audit committee of the Company comprises Mr. Leung Wai Man, Mr. Lai Hok Lim and Mr. Man Kong Yui (all being independent non-executive Directors). The audit committee of the Company is mainly responsible for supervising the Company’s internal control system and its execution, evaluating financial information and related disclosure, reviewing the internal control system, auditing major connected transactions and also communicating, supervising and investigating the Company’s internal and external audits.

– 113 –

GENERAL INFORMATION

APPENDIX VI

Mr. Lai Hok Lim

Mr. Lai Hok Lim, aged 48, is an independent non-executive Director. He is a practicing solicitor in Hong Kong since 1989. He graduated from the University of Hong Kong with a Bachelor of Arts Degree and holds a Bachelor of Arts (Law) Degree from the University of Sussex in the United Kingdom and a Bachelor of Law Degree from Beijing University in the People’s Republic of China. Mr. Lai joined the Company on 10 July 2007. Mr. Lai was appointed as an independent non-executive director of Riche Multi-Media Holdings Limited, a company listed on the Main Board of the Stock Exchange, during the period from 19 November 1999 to 12 April 2005.

Mr. Leung Wai Man

Mr. Leung Wai Man, aged 37, is an independent non-executive Director. He has over seven years of experience in company secretary, accounting and financial management. He is an associate member of the Association of Chartered Certified Accountants in the United Kingdom. Mr. Leung joined the Company on 10 July 2007.

Mr. Man Kong Yui

Mr. Man, aged 47, has been involved in the financial and securities industries for over 25 years and has extensive experience in bullion, securities, futures and foreign exchange business. He has held various senior positions with prominent banks and international financial institutions. Mr. Man holds a Bachelor’s degree in Business Administration from Chinese University of Hong Kong. Mr. Man is currently an independent non-executive director of GreaterChina Technology Group Limited, a company whose shares are listed on GEM and an independent non-executive director of Get Nice Holdings Limited, a company whose shares are listed on the main board of the Stock Exchange.

COMPETING BUSINESS

As at the Latest Practicable Date, so far as the Directors are aware of, none of the Directors, management Shareholders and employees of the Group or their respective associates had any interests in a business which competes or may compete with the business of the Group or any other conflicts of interests with the Group.

DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any existing or proposed service contracts with the Company or any member of the Group which is not determinable by the Group within one year without payment of compensation, other than the statutory compensation.

– 114 –

GENERAL INFORMATION

APPENDIX VI

DIRECTORS’ INTEREST IN ASSETS

The Directors confirm that none of the Directors has any interest, direct or indirect, in any assets which had been, since 31 March 2007, being the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Enlarged Group, or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

DIRECTORS’ INTEREST IN CONTRACTS

The Directors confirm that there is no contract or arrangement subsisting at the Latest Practicable Date in which a Director was materially interested and which was significant in relation to the business of the Enlarged Group.

MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business of the Enlarged Group) have been entered into by any member of the Enlarged Group within two years immediately preceding the Latest Practicable Date which are or may be material:

the new share placement agreement dated 28 November 2006 entered into between the Company and Kingston Securities Limited, the placing agent, in respect of the placing of 161,000,000 new Shares at the placing price of 0.022 per Share;
the bond placement agreement dated 5 December 2006 entered into between the Company and Kingston Securities Limited, the placing agent, in respect of the placing of the convertible bonds in an aggregate principal amount of HK$20 million;
the subscription agreement dated 12 March 2007 and entered into between the Company and CSL in relation to the subscription and issue of the zero coupon convertible bonds in principal amount of HK$25 million due 2012;
the agreement dated 23 April 2007 entered into between the Group and Keep Beat Enterprises Limited in relation to the disposal by the Group of the entire issued capital of Luminous Star Limited and Milkyway Image (Hong Kong) Limited and the related Shareholder’s loan at an aggregate consideration of HK$26 million;
the agreement dated 28 June 2007 entered into between Grand Billion Investments Limited, a wholly-owned subsidiary of Classic Grace, and an independent third party in relation to sale and purchase of a property at an aggregate consideration of HK$22.52 million;

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GENERAL INFORMATION

APPENDIX VI

the sale and purchase Agreement dated 28 August 2007 entered into between the Company and Billion ERA Group Limited in relation to sale and purchase of the entire issued share capital of Classic Grace and the related Shareholder’s loan at a consideration of HK$24 million;
the underwriting agreement dated 28 August 2007 entered into between the Company and Kingston Securities Limited in relation to an open offer of the Company;
the Tranche I Placing Agreement;
the Tranche II Placing Agreement; and
the Sale and Purchase Agreement.

CORPORATE INFORMATION

(a) The registered office of the Company is located at Cricket Square, Hutchins Drive, P.O. Box 2681 Grand Cayman KY1-1111, Cayman Islands.
(b) The head office and principal place of business in Hong Kong is located at Unit 1611, 16/F., Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong.
(c) The principal share registrar and transfer office of the Company is Bank of Bermuda (Cayman) Limited at P.O. Box 513GT Strathvale House, North Church Street, George Town, Grand Cayman, Cayman Islands, British West Indies.
(d) The branch share registrar and transfer office of the Company is Tricor Secretaries Limited at 26/F., Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.
(e) The secretary and qualified accountant of the Company is Mr. Lee Chan Wah FCCA, HKICPA.
(f) The compliance officer of the Company is Mr. Yip Tai Him appointed pursuant to Rule 5.19 of the GEM Listing Rules.

GENERAL

The English text of this circular shall prevail over the Chinese text for the purpose of interpretation.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the principal place of business of the Company in Hong Kong at the office of the legal advisers of the Company, Robertsons & Co., 57/F., The Center, 99 Queen’s Road Central, Hong Kong, during 10:00 a.m. to 4:00 p.m. on any Business Day, from the date of this circular up to and including the date of the EGM:

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GENERAL INFORMATION

APPENDIX VI

(a) the memorandum and articles of association of the Company;
(b) the valuation report on the Property prepared by Grant Sherman, the text of which is set out in Appendix II to this circular;
(c) the accountants’ report on the Target Group prepared by CCIF, the text of which is set out in Appendix III to this circular;
(d) the accountants’ report on Classic Grace prepared by CCIF, the text of which is set out in Appendix IV to this circular;
(e) the letter from CCIF in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix V to this circular;
(f) the annual reports of the Group for the two financial years ended 31 March 2007;
(g) the consent letters from Grant Sherman and CCIF referred to in the paragraph headed “Qualification and consent of experts” in this appendix;
(h) the material contracts referred to under the section headed “Material contracts” in this appendix;
(i) the circular of the Company dated 23 May 2007 in relation to a very substantial disposal and connected transaction of the Company;
(j) the circular of the Company dated 15 October 2007 in relation to a major transaction of the Company; and
(k) this circular.

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NOTICE OF EGM

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(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 8130)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Brilliant Arts Multi-Media Holdings Limited (the “ Company ”) will be held at 4:30 p.m. on Thursday, 17 January 2008 at Unit 1611, 16/F., Shun Tak Centre, West Tower, 168-200 Connaught Road Central, Hong Kong for the purposes of considering and, if thought fit, passing, with or without modification, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

“ THAT the sale and purchase agreement dated 23rd October, 2007 (the “Agreement”) entered into between Brilliant Arts Multi-Media Holding Limited, Eagle Mate Limited and Mr. Cheung Kwok Wai relating to the acquisition of the entire issued share capital in Grandeur Concord Limited and the related Shareholder’s loan (the “Acquisition”) for a total consideration of HK$18,000,000, a copy of which is tabled at the meeting and marked “A” and initially by the Chairman of the meeting for identification purposes, be and is hereby approved, ratified and confirmed in all respects and that all transactions contemplated under the Acquisition be and are hereby approved and that any one director of the Company be and is hereby authorised to do or execute all such acts or such other documents which the director may deem to be necessary, desirable or expedient to carry into effect or to give effect to the Acquisition.”
“ THAT subject to and conditional upon the GEM Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of and permission to deal in the ordinary shares of HK$0.10 each (the “Shares”) in the share capital of the Company (representing a maximum of 10 per cent of the ordinary shares of the Company in issue as at the date of passing this resolution) which may be issued pursuant to the exercise of options granted under the Company’s share option scheme adopted on 2nd August, 2002 (the “Scheme”), the refreshing of the scheme limited on grant of options under the Scheme and any other share option scheme(s) of the Company up to 10 per cent of the ordinary shares of the Company in issue as at the date of passing this resolution (the “Refreshed Scheme Mandate Limit”) be and is hereby approved and any director of the Company be and is hereby authorised to do such act and execute such document of effect the Refreshed Scheme Mandate Limit.”

By Order of the Board Brilliant Arts Multi-Media Holdings Limited Lei Hong Wai Chairman

Hong Kong, 31 December 2007

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NOTICE OF EGM

Notes:

A form of proxy for use at the meeting is dispatched to the shareholders of the Company.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal of under the hand of any officer, attorney or other person authorised to sign the name.
Any shareholder of the Company entitled to attend and vote at the meeting convened by the above notice shall be entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a shareholder of the Company.
In order to be valid, the from of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power of attorney or authority, must be deposited at the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding of the above meeting or any adjournment thereof.
Completion and return of the form of proxy will not preclude a shareholder of the Company from attending and voting in person at the meeting convened or at any adjourned meeting and in such event, the form of proxy will be deemed to be revoked.
Where there are joint holders of any share of the Company, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one of such joint holders are present at the meeting, the most senior shall alone be entitled to vote, whether in person or by proxy. For this purpose, seniority shall be determined by the order in which the names stand on the registrar of members of the Company in respect of the joint holding.
As at the date of this notice, the Board comprises two executive Directors namely, Lei Hong Wai and Yip Tai Him and three independent non-executive Directors namely, Lai Hok Lim, Leung Wai Man and Man Kong Yui.

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AI assistant

Dadi International Group Limited — Proxy Solicitation & Information Statement 2007

51285_rns_2007-12-31_1b6b6222-d810-4008-bf18-ea484001d52d.pdf

MAJOR TRANSACTION, REFRESHMENT OF SCHEME MANDATE LIMIT OF SHARE OPTION SCHEME

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

To the Shareholders

MAJOR TRANSACTION, REFRESHMENT OF SCHEME MANDATE LIMIT OF SHARE OPTION SCHEME AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

LETTER FROM THE BOARD

THE SALE AND PURCHASE AGREEMENT

Assets to be acquired

Consideration

Lock-up period for the Consideration Shares

Conditions precedent

Completion

SERVICE CONTRACT

INFORMATION ON THE TARGET GROUP

REASONS FOR THE PROPOSED ACQUISITION

SHAREHOLDING STRUCTURE OF THE COMPANY

EFFECT OF THE ACQUISITION TO THE ENLARGED GROUP

FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

LETTER FROM THE BOARD

IMPLICATIONS UNDER THE GEM LISTING RULES IN RESPECT OF THE ACQUISITION

REFRESHMENT OF THE SCHEME MANDATE LIMIT

LETTER FROM THE BOARD

THE EGM

PROCEDURES FOR DEMANDING A POLL

RECOMMENDATION

ADDITIONAL INFORMATION

THREE YEARS FINANCIAL SUMMARY

RESULTS

ASSETS AND LIABILITIES

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF THE GROUP FOR THE FINANCIAL YEAR ENDED 31 MARCH 2007

Consolidated Income Statement

Consolidated Balance Sheet

Balance Sheet

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

APPENDIX I

Notes to the Financial Statements

1. GENERAL

2. BASIS OF PREPARATION

3. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

APPENDIX I

4. SIGNIFICANT ACCOUNTING POLICIES

a) Basis of consolidation

b) Revenue recognition

c) Impairment

d) Taxation

e) Property, plant and equipment

f) Subsidiaries

g) Film rights

h) Production in progress

i) Films in progress

j) Leased assets

k) Receipt in advance

l) Foreign currencies

m) Related party

n) Provision and contingencies

o) Cash and cash equivalents

p) Borrowing costs

q) Employee benefits

r) Financial instruments

Financial assets

Financial assets at fair value through profit or loss

Loans and receivables

APPENDIX I

Held-to-maturity investments

Available-for-sale financial assets

Financial liabilities and equity instruments

Other financial liabilities

Equity instruments

Derecognition

s) Convertible bonds

Dadi International Group Limited Proxy Solicitation & Information Statement 2007